The settlement, announced on Wednesday, includes $6.3 billion in
cash and the rest in securities that Bank of America will purchase
from the two housing finance entities.
The second-largest U.S. bank by assets said it had now resolved
around 88 percent of its total exposure to securities at issue in
the mortgage bond litigation it has faced.
Bank of America's first-quarter profits could take a substantial hit
from the deal. The bank said the settlement was expected to reduce
first-quarter income by about 21 cents a share, or three-quarters of
what analysts surveyed by Thomson Reuters I/B/E/S forecasted the
bank to earn before the settlement was announced.
Also on Wednesday, Bank of America and its former chief executive,
Kenneth Lewis, settled a lawsuit by New York's attorney general that
alleged it misled investors about mounting losses at Merrill Lynch &
Co, which the bank agreed to acquire at the height of the financial
Lewis, who resigned in 2009, agreed to pay $10 million and be barred
for three years from serving as an officer or director of a public
company. Bank of America agreed to pay $15 million and adopt
corporate reforms. Both payments will cover the costs of New York's
investigation, and neither Lewis nor Bank of America is admitting
wrongdoing or paying damages.
Bank of America still faces a lawsuit from the U.S. Justice
Department and several other probes by the DOJ and states over
mortgage-backed securities it sold during the housing boom. On
Wednesday, the bank said it has had "preliminary discussions" to
resolve the matters.
'REASONABLE AND PRUDENT'
The new settlement with Fannie Mae and Freddie Mac resolves lawsuits
filed against Bank of America, Merrill Lynch, and Countrywide, the
subprime mortgage lender it bought at the height of the financial
The regulator of Fannie Mae and Freddie Mac, the Federal Housing
Finance Agency, had accused the bank of misrepresenting the quality
of loans underlying residential mortgage-backed securities purchased
by the two mortgage finance companies between 2005 and 2007.
The two taxpayer-owned firms have operated under conservatorship
since 2008, when they were seized by regulators after losses on
subprime loans pushed them toward insolvency.
[to top of second column]
It was the 10th settlement that the FHFA has reached in litigation
that began in 2011 when it filed 18 lawsuits over about $200 billion
in mortgage-backed securities, an investment product at the center
of the recent global financial crisis.
Many of the settlements were reached after a series of court rulings
that went against the banks.
"FHFA has acted under its statutory mandate to recover losses
incurred by the companies and American taxpayers and has concluded
that this resolution represents a reasonable and prudent
settlement," FHFA Director Mel Watt said in a statement.
So far, the FHFA has recovered more than $10 billion from banks by
asserting similar claims over mortgage securities. Seven other banks
still need to resolve similar lawsuits.
Merrill Lynch would have been the first of the banks with legal
disputes still pending to face trial, with a date of June 2.
U.S. District Judge Denise Cote has scheduled September trial dates
for Goldman Sachs Group Inc and HSBC Holdings plc.
(Reporting by Margaret Chadbourn and Aruna Viswanatha in Washington
and Nate Raymond and Peter Rudegeair in New York; editing by
Jonathan Oatis, Lisa Shumaker and Peter Cooney)
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