Bank of America Offers Biggest Settlement Ever

Bank of America has spent months stalling throwing out low numbers for a settlement, but once the government got involved the situation was resolved within 24 hours. The bank has agreed to the largest federal settlement in US corporate history.

The tentative deal, which will cost the bank a reported $16 billion, started to form late last week when the Justice Department rejected another offer from Bank of America. Then Judge Jed S. Rakoff stepped in and issued a ruling against Bank of America that would completely destroy any negotiating leverage that the bank had. He issued an order for the bank to pay almost $1.3 billion for selling thousands of defective loans, previously Bank of America lost this case in a jury trial.

The bank’s executives and lawyers, who earlier decided to fight that case rather than settle, seemed to realize that yet another courtroom battle would be very expensive and not fall in their favor. The remaining cases to be decided involved billions in securities backed with home loans, could have cost much more than the penalty and perhaps more than a settlement.

Right after the judge’s decision, Attorney General Eric Holder but another nail in the coffin by demanding from the bank’s chief executive, Brian T. Moynihan, to either put forth a better offer or he would be suing the bank by Friday and was given a deadline of 8 am on Thursday.

On July 31st, reportedly a lawyer for the bank called to make the offer of $9 billion in cash and over $7 billion in soft dollar relief to customers. This offer was much closer to the Justice Department’s demands and much more than what Citigroup and JPMorgan Chase paid in similar cases.

This decision to back down shows the problems that the bank has had with the legal arguments it’s been making. The bank has argued that it should not be penalized for the wrongdoing of Countrywide Financial and Merrill Lynch, the two companies that brought the bank into this crisis. The bank argued that federal regulators pressured them to go through with the Merrill Lynch acquisition and that they had no legal liability for Countrywide mortgages made before its acquisition.

Even though the settlement is a huge amount, it would at least bring closure to this long standing battle for the bank. A battle that has already cost them tens of billions. Just this week the bank made a first step at returning to normal procedures when they announced an increase in its dividend for the first time in seven years to $0.05 per share. An increase from a penny per share.

However, the settlement is not final yet, the two sides are still negotiating a statement of facts that outline’s Bank of America’s misconduct and how to divide the soft dollar relief for consumers.

Receive News & Ratings Via Email - Enter your email address below to receive a concise daily summary of the latest news and analysts' ratings with our FREE daily email newsletter.