Bank of America Corp (NYSE:BAC) has cleared a huge cloud of financial stress and bag mortgages with a settlement of $16.65 billion announced on August 21, 2014. The settlement includes Bank of America Corp (NYSE:BAC), the U.S. Department of Justice, six states, and several federal agencies.
According to the news release by Bank of America official website, these claims are related to the investment issues associated with Countrywide Financial Corp and Merrill Lynch Co, which occurred before Bank of America Corp (NYSE:BAC) acquired them in 2008. According to the CEO of BAC, Brian Moynihan,
“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.”
The settlement includes cash payment of $9.65 billion along with consumer relief services worth $7 billion. Bank of America Corp (NYSE:BAC) is expecting its third quarter 2014 earnings (pretax) to fall by $5.3 billion after the settlement. According to Joel Conn, President of Birmingham-based investment firm Lakeshore Capital,
“Regulators wanted a pound of flesh, and they got it.”
He added that the settlement has surpassed market expectations but it will certainly lift a major cloud from the bank.
Bank of America Corp (NYSE:BAC) witnessed an increase of 4.12% in its share price after the announcement. The settlement has certainly closed one of the most worrisome financial problems of Bank of America. The bank reported revenue of $22.0 billion for the second quarter 2014 with net income of $2.3 billion. It litigation expenses rose to $4.0 billion in the quarter and the bank had $54 billion in total deposit balance. Bank of America issued 1 million new credit cards within this quarter.
This article has been written by Prakash Pandey.