Bank of America has requested for its CEO to meet with the U.S. attorney general over a possible multibillion-dollar settlement involving troubled mortgage securities, a source familiar with the negotiations told the Observer on Friday.
The proposal for CEO Brian Moynihan to talk with Attorney General Eric Holder is an attempt to reach a resolution in the matter. The Justice Department is seeking to extract a settlement from the bank over the sale to investors of securities backed by home loans that soured and contributed to the financial crisis.
The settlement would add to the billions of dollars the Charlotte-based bank has paid to resolve legal issues that have plagued it since the financial crisis.
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.
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There is disagreement between Bank of America and the Justice Department over how much the bank would pay in cash versus consumer relief as part of a settlement, the source said. Meanwhile, the Justice Department has been moving ahead with plans to file a civil lawsuit against the bank, according to the source.
Bank of America spokesman Lawrence Grayson declined to comment Friday. Emily Pierce, a Justice Department spokeswoman, also declined to comment.
Bloomberg, citing people familiar with the matter, reported last week that prosecutors halted talks with the bank June 9 after it offered to pay more than $12 billion, below the $17 billion the Justice Department sought.
The bank made $11.4 billion in profit for all of 2013.
The latest offer from Bank of America for consumer relief totaled more than $5 billion of the overall settlement amount, the source familiar with the negotiations told the Observer.
The person said the proposed consumer relief would look similar to what was part of a settlement last year involving JPMorgan Chase & Co. The relief in that deal involved loan modifications for struggling borrowers and anti-blight activities, among other things.
The source familiar with the negotiations said the Justice Department accord would be a “global” settlement that would resolve other outstanding mortgage-related civil probes, including a lawsuit filed last year by U.S. Attorney Anne Tompkins over Bank of America’s originating and packaging of mortgages into $850 million in securities.
That lawsuit, which accuses Bank of America of fraud, says the bank misled investors about the quality of the mortgages that backed the securities. An “abnormally high” number of the mortgages defaulted, causing millions of dollars in losses to investors, according to the suit.
A federal magistrate judge earlier this year recommended dismissal of that suit, but U.S. District Judge Max Cogburn on Thursday granted the Justice Department 30 days to file an amended version.
Also Thursday, Cogburn ruled that a related Securities and Exchange Commission lawsuit against the bank could go forward.
Bank of America has said the five investors, which included Charlotte-based Wachovia Bank, were sophisticated and that the bank “extensively” documented the risks they would face if they bought the securities.
The five investors have not sued the bank over the securities that were part of the $850 million package.
A settlement with the Justice Department could mark a turning point for the bank in its efforts to move past legal challenges stemming from the financial crisis. In May, Moynihan indicated that a Justice Department settlement would put the largest of the bank’s remaining crisis-era legal challenges behind it.
“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,” Moynihan said at a conference in New York.
JPMorgan Chase reached its record $13 billion civil settlement with the U.S. government and state authorities in November over mortgage-backed securities. That deal was the largest settlement involving the U.S. government and a single company. The government said JPMorgan helped spark the mortgage meltdown by misleading investors about the quality of securities containing toxic mortgages.
Bank of America, the second-largest U.S. bank by assets, has spent more than $60 billion in settlements and legal fees in the past five years. The string of settlements began in earnest in mid-2011, when the bank came to an $8.5 billion agreement with a group of institutional investors who bought Countrywide mortgage bonds.
Costly settlements have been a drag on the bank’s earnings and its stock, analysts have said.
The bank reported that it lost lost $276 million in the first three months of this year as it absorbed the costs of a roughly $9.5 billion settlement with the Federal Housing Finance Authority in March.
The FHFA, which oversees Fannie Mae and Freddie Mac, had accused Bank of America of violating securities law while selling bonds to the two mortgage giants between 2005 and 2007. The bank did not admit liability or wrongdoing in the settlement.
Roughly six years since the crisis, analysts and investors continue to wonder when the bank will finally put its legal problems behind it – and how much more settlement-related costs the bank will face.
In April, some analysts on a conference call with Bank of America officials wanted specifics on why the bank was putting $2.4 billion more into a reserve for future legal expenses.
Chief Financial Officer Bruce Thompson would only say the additional reserves were for “mortgage-related matters” the bank had previously disclosed and did not give further details.