Bank of America (BAC) has reached a record $16.65 billion settlement with federal and state authorities over its sale of mortgage-backed securities.
The deal is the largest ever reached with a single entity in U.S. history.
The bank will pay $9.65 billion in cash and another $7 billion that will go toward consumer relief, the company announced Thursday. The settlement resolves certain civil claims by the U.S. Department of Justice, Securities and Exchange Commission, the Federal Deposit Insurance Corporation and multiple state attorney generals.
“We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future,” said CEO Brian Moynihan.
Bank of America expects the deal will reduce third-quarter pre-tax earnings by $5.3 billion, or about 43 cents a share.
The settlement amount is the largest of its kind, dwarfing JPMorgan’s (JPM) $9 billion deal with the U.S., struck in November, and Citigroup’s (C) $7 billion settlement, which was finalized last month.
Though, when compared to the amount of mortgage-backed securities issued by each bank, the fine falls in-line with the likes of JPMorgan and makes Bank of America look like it got off easy compared to Citigroup. An especially lucky break since Countrywide, which Bank of America bought before the height of the crisis in 2008, was connected with some of the worst subprime mortgages.
In addition to the monetary fines, the deal requires the bank to acknowledge its role in allegedly masking the quality of the mortgage-backed securities it sold, as well as those of Countrywide Financial and Merrill Lynch, both purchased in 2008.The settlement doesn’t cover any potential criminal claims or claims against individuals.
The $7 billion for borrower relief will be in the form of mortgage modifications, low- to moderate-income mortgage originations and community reinvestment efforts in blighted or at-risk neighborhoods. The relief will be overseen by an independent monitor and will be distributed no later than Aug. 31, 2018.
In a separate case, Countrywide co-founder Angelo Mozilo and 10 other former Countrywide employees are facing civil lawsuits brought by U.S. attorneys in Los Angeles. The charges are related to the subprime loans that led to the financial crisis.