(Updated, 1 p.m.)
WASHINGTON - Bank of America Corp. agreed to pay about $16.7 billion to end federal and state probes into mortgage bond sales, the harshest penalty yet related to loans that fueled the 2008 financial crisis.
The settlement, which includes $9.65 billion in cash and $7 billion in consumer relief, resolves civil investigations by government prosecutors, the U.S. government said Thursday.
“This constitutes the largest civil settlement with a single entity in history, addressing conduct uncovered in more than a dozen cases and investigations,” Attorney General Eric Holder said at a press conference in Washington, D.C. “The size and scope of this multibillion-dollar agreement go far beyond the ‘cost of doing business.’ ”
The agreement cements Bank of America’s status as the firm punished hardest for faulty mortgage practices. It eclipses Citigroup Inc.’s $7 billion settlement in July and JPMorgan Chase & Co.’s $13 billion accord in November. Bank of America’s settlement also comes on top of its $9.5 billion deal in March to resolve related Federal Housing Finance Agency claims.
Bank of America expects the settlement to reduce third-quarter pretax profit by about $5.3 billion, or 43 cents a share after tax, the company said today in a statement. The lender reported an $11.4 billion profit for all of last year.
The stock rose 1.9 percent to $15.82 at 12:16 p.m. in New York.
Bank of America and its Merrill Lynch and Countrywide Financial units sold billions of dollars of mortgage securities that were backed by toxic loans and misrepresented the risks to investors, the government said.
“It’s kind of like going to your neighborhood grocery store to buy milk advertised as fresh, only to discover that store employees knew the milk you were buying had been left out on the loading dock, unrefrigerated, the entire day before, yet they never told you,” Associate Attorney General Tony West said during the press conference.
The agreement includes a $5.02 billion penalty, $1.8 billion to settle fraud claims related to the sale and origination of mortgages, and more than $900 million to a group of states including New York and California. The bank also agreed to pay $245 million to the Securities and Exchange Commission to resolve two investigations, one that’s part of the Justice Department settlement and another over securities fraud.
The settlement doesn’t release individuals from civil charges or shield the bank from criminal prosecution, the United States said. It also excludes a lawsuit in which a judge ordered the company to pay $1.3 billion for defective mortgages, a ruling the bank said it will appeal.