Bank of America’s top executive said Thursday he hoped a record-setting $16.65 billion penalty officially announced by the Justice Department over the sales of bad mortgages and securities ahead of the 2008 financial global panic will remove a major cloud from the Charlotte, North Carolina-based bank’s future.
“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,” Bank of America CEO Brian Moynihan said in a statement shortly after U.S. Attorney General Eric H. Holder Jr. and Justice Department officials confirmed a final deal had been reach.
Investors appeared to agree, at least in the short term, sending the company’s stock up 64 cents, or 4.12 percent, to $16.16 in trading on the New York Stock Exchange Thursday. That’s the highest level for the stock in four months.
The deal, the latest announced by the government in the wake of the mortgage market collapse of 2008-2009, is part of a string of settlements the Obama administration has won from some of the country’s biggest and best-known financial houses. Most of the questionable home loans were booked by the once high-flying Countrywide Financial Corp., which was subsequently taken over by Bank of America.
The Bloomberg news service Wednesday reported that the government may soon be filing a suit against Countrywide co-founder Angelo Mozilo over his role in the mortgage company’s collapse.
Bank of America, Merrill Lynch and Countrywide sold bad loans “whose quality and level of risk they knowingly misrepresented to investors and the U.S. government,” Mr. Holder told reporters in a briefing at the Justice Department Thursday.
“These financial institutions knowingly, routinely, falsely and fraudulently marked and sold these loans as sound and reliable investments,” Mr. Holder said. “Worse still, on multiple occasions — when confronted with concerns about their reckless practices — bankers at these institutions continued to mislead investors.”
The bank will pay $7 billion in relief to struggling homeowners, plus $490 million to help cover some of the cost of taxes for the money. The remaining money — nearly $10 billion — will go to settle securities claims by state governments and the Federal Deposit Insurance Corp.
The settlement is the latest in a line of agreements between the Justice Department and banks over the financial crisis and the largest one ever reached between the federal government and a single company or person.
In the past few months, Mr. Holder has announced several multibillion-dollar settlements, including a $7 billion agreement with Citigroup in July and a $13 billion agreement with JPMorgan Chase in November.
Yet he has faced criticism from some consumer advocacy groups who say the banks are being given relative slaps on the wrist and fines that they can quickly recoup after devastating the U.S. economy.
“The public wants to know, will anyone go to jail for crashing the economy?” said Robert Weissman, the president of Public Citizen, a nonprofit that represents consumer interests.
“Will any executives or Wall Street Goliaths be held criminally liable for their misdeeds? Sadly, shamefully, it appears the answer to these questions is no,” he said Thursday.
Mr. Holder made it clear that the settlement “does not preclude any criminal charges against the bank or its employees.” A statement from the Justice Department said the agreement does not “absolve Bank of America” from “potential criminal prosecution.”
Leading up to the financial meltdown, banks and mortgage lenders such as Countrywide collected “toxic assets” made up of risky investments, bad loans and subprime mortgages — essentially offering easy credit to borrowers who could not repay their debts. They then sold those assets to other banks, pension plans and mutual funds, downplaying the risks involved.