BofA close to $16-bn settlement with US regulators

US banking giant Bank of America Corp (BofA) is nearing a landmark settlement of over $16 billion with US justice department, eclipsing the $9 billion imposed upon BNP Paribas just over a month ago by the US authorities, according to people familiar with the matter.

The defrayal, if finalised, is the largest single US government settlement in the history of corporate America. It relates to the sale of mortgage-related securities by the bank in the years leading up to global financial crisis.

June reports suggested a lower $12 billion deal as the negotiations continued between the bank and the justice department and it is now expected that the amount could reach $16-17 billion. (See: BofA in tentative $12-bn deal with US regulators to resolve shoddy mortgages probe.)

BofA inherited the toxic assets through the acquisition of Merrill Lynch & Co Inc and Countrywide Financial in 2008 (See: Bank of America buys Merrill Lynch and Bank of America agrees to purchase Countrywide Financial Corp)

In a similar settlement reached at the end of June, French banking major BNP Paribas agreed to pay $9 billion and plead guilty to crimes violating US sanctions against Sudan, Iran and Cuba. (See: BNP Paribas to pay $9-bn fine over sanctions violations)

Other US banking giants JP Morgan Chase & Co and Citigroup Inc also faced charges related to mortgage-backed securities. JP Morgan paid $13 billion last year, while Citigroup paid $7 billion last month. (See: Citi to settle US mortgage scam probe for $7 bn)

The settlement ends series of investigations and lawsuits targeting toxic mortgage assets sold before the financial crisis.

Of the total amount, around $9 billion will be paid in fines to the federal government, state and other government entities and the rest in relief to distressed American homeowners.

The settlements are a result of president Barack Obama's initiative to investigate the alleged fraud in the sub-prime mortgage securities that helped fuel the 2008 financial crisis and collapse of the American economy.

A separate task force, Residential Mortgage Backed Securities (RMBS) working group was set up in 2012 to investigate the causes of the financial crisis and coordinate prosecutions of fraudulent underwriting activity by banks blamed for ruining the economy.

The BofA settlement has come at a good time when president Obama is facing mid-term elections in the country.

Separately, on Wednesday, BofA said it would increase its dividend pay-out for the first time in seven years, from 1 cent to 5 cents a share.

Earlier this year, BofA agreed to pay Federal Housing Finance Agency for faulty mortgage bonds, which is estimated to be approximately $6 billion and the total tag, including the current settlement could be as high as $23 billion.

Analysts believe that, the settlement although hefty, would represent a long-awaited turning point for BofA to surpass the legal issues and move forward. It has already shelled out about $60 billion since the financial crisis to settle various lawsuits and buy back mortgage securities.

During the period from 2004 to 2008, BofA, Countrywide and Merrill Lynch together sold mortgage securities worth $965 billion, three-quarters of which were by Countrywide. Of the $245 billion defaulted BofA account for only about 4 per cent.

Details of the deal are still being worked out by the BofA and the regulators and the sources do not expect an announcement on the matter this week.