Bank of America’s nearly $17 billion settlement with the U.S. Department of Justice over soured mortgage bonds could be announced as early as Thursday, a source familiar with the talks told the Charlotte Observer Wednesday.
Bloomberg News, citing a person who requested anonymity because the deal hasn’t been disclosed publicly, reported Wednesday that the Charlotte bank’s settlement will total $16.6 billion.
The Associated Press reported separately Wednesday that the settlement will be divided into $10 billion in cash and $7 billion in consumer relief. The consumer relief could take multiple forms, such as modifications and principal reductions for people struggling to pay home loans.
Bank of America spokesman Lawrence Grayson and a spokesperson for the Justice Department declined to comment.
At nearly $17 billion, the overall settlement figure would be the largest between the government and a company. It would eclipse a $13 billion settlement, announced in November, between JPMorgan Chase & Co. and the Justice Department to resolve similar probes.
According to Bloomberg, the Bank of America agreement would resolve civil investigations by federal and state prosecutors in California, New York and New Jersey. Bloomberg also said the accord would resolve a lawsuit filed in North Carolina — likely a reference to a suit filed in August 2013 by U.S. Attorney Anne Tompkins over “prime” mortgages.
In that case, the bank is accused of defrauding investors over “prime” mortgages that allegedly were riskier than advertised. The U.S. Securities and Exchange Commission filed a similar lawsuit against the bank at the same time.
The settlement caps months of negotiations between the Justice Department and the bank. It is expected to resolve what its executives have said is the biggest outstanding legal issue hanging over the bank’s head since the financial crisis.
“We’ve got a myriad of cases that we’ll work through, but of the big stuff, that’s really the one that’s left out there,” Bank of America CEO Brian Moynihan said in May.
By reaching the deal, Bank of America becomes the latest major U.S. lender to settle U.S. government investigations into alleged mortgage misconduct blamed on fueling the worst U.S. economic crisis since the Great Depression.
The deal comes after the government and Citigroup reached a $7 billion settlement over shoddy mortgage securities. That accord was announced in July.
The settlement would boost Bank of America’s already high tally for legal costs stemming from the crisis. The second-largest U.S. bank by assets has spent more than $60 billion over financial crisis-era legal issues — more than any other lender has paid to resolve similar matters.
The majority of those costs have stemmed largely from Bank of America’s purchase of investment bank Merrill Lynch & Co. in 2009 and its purchase of mortgage lender Countrywide Financial Corp. in 2008.
Bank of America is expected to be able to write off a portion of the settlement as a tax-deductible business expense. When their settlements were announced, JPMorgan and Citi also said portions were also tax-deductible.
A source close to the negotiations told the Observer last week that roughly $9 billion of the Bank of America settlement is expected to be in two forms: a penalty payment to the U.S. government, and separate cash payments to federal agencies and various states.
While the penalty payment would not be tax-deductible under U.S. tax law, any cash payments would be.
Bank of America has already taken tax deductions through charging off billions of dollars in mortgages that have soured and are the subject of the civil probes the settlement would resolve. That means the bank isn’t expected to take additional tax deductions for the majority of the consumer relief portion.
The deal has sparked criticism from consumer-advocacy groups, who say it’s unfair to taxpayers that a portion of the settlement will likely be tax-deductible.
“To understand how significant the BoA 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,” Phineas Baxandall, analyst at the U.S. Public Interest Research Group said in a statement Tuesday.
“This so-called soft-dollar relief is worth securing in settlements, but let’s not pretend these are all new dollars that Bank of America is putting on the table,” he said.
“The public wants banks to atone for improper practices that led to the financial crisis. Americans can’t judge how well the Justice Department is holding Bank of America accountable unless the announced settlement amounts are real.”