Bank of America has agreed to pay nearly $17 billion to settle federal and state allegations it sold risky, mortgage-backed securities to investors before the national financial crisis, a person familiar with the matter said Wednesday.
The settlement, the largest in history between the federal government and a single company, is expected to be unveiled as soon as Thursday, said the person, who spoke on condition of anonymity in advance of the official announcement.
The tentative deal is expected to include billions to the Department of Justice and several states, with billions more going to reduce mortgage payments for struggling homeowners and other consumer relief.
Shares of the nation's second-largest bank, (BAC), closed up fractionally at $15.52 Wednesday, and were up an additional 5 cents in after-market trading.
The deal was hammered out during months of negotiations between lawyers for Bank of America and Department of Justice prosecutors — as well as direct talks between Bank of America CEO Brian Moynihan and Attorney General Eric Holder.
The settlement marks the latest in a series of Department of Justice legal actions focused on financial institutions whose marketing and sale of risky mortgage-backed securities contributed to a real estate market collapse amid the 2008 financial crisis.
For Bank of America, the record-breaking settlement significantly boosts the more than $60 billion that the Charlotte, N.C.-headquartered bank has already spent to resolve legal issues stemming from the financial crisis. No other U.S. bank has spent more.
Much of the activity covered by the settlement occurred in Countrywide Financial, the mortgage company the bank bought in 2008, and Merrill Lynch, the brokerage the bank also acquired during the financial crisis.
Despite the size of the new settlement, some consumer groups have criticized the lack of detailed data on investor losses linked to the mortgage-selling scheme, as well as an absence of charges against specific bank officials. Dennis Kelleher, president and CEO of Better Markets, a financial watchdog, earlier this month called on Department of Justice officials to provide that information.
Additionally, the U.S. Public Interest Research Group, a national consumer group, noted Monday that large portions of bank settlements with the government have been tax-deductible.
"To understand how significant the BofA settlement really is, people need to ask how many billions the bank is allowed to write off as tax deductions, and how much of the announced figure includes 'fake costs' — costs the bank would have incurred anyway to protect its bottom line," said Phineas Baxandall, the consumer group's senior analyst.