Bank of America and the Justice Department have reached a tentative deal that would cost the bank nearly $17 billion to settle an investigation into its sale of toxic mortgage securities in the run-up to the financial crisis, according to people briefed on the matter, the latest eye-popping rebuke of a giant bank.
The agreement, which is not final and could still fall apart, would represent a record for the government. It would be the largest sum the Justice Department has ever extracted from a single company.
The bank has agreed to pay a roughly $9 billion cash penalty to the United States Treasury - last month, Citigroup agreed to pay a $4 billion penalty - while providing the remaining money in the form of relief to struggling homeowners, the people briefed on the matter said. Just a few weeks ago, the bank was offering only $3 billion in cash, a figure that temporarily caused talks to break down.
A breakthrough came last week on a phone call between Attorney General Eric Holder and the bank's chief executive, Brian T. Moynihan, one of the people said. Earlier in discussions, when the two sides were far apart, the Justice Department turned down a request for Mr. Moynihan to meet with Mr. Holder.
Despite the huge penalty, critics contend that the government crackdown has amounted to little more than a slap on the wrist. No Bank of America employee will face charges, and the case against the bank is civil, rather than criminal.
The settlement ends months of on-again, off-again negotiations between the Justice Department and Bank of America, which has already paid more than $50 billion to settle lawsuits by private investors and regulators largely related to its Countrywide Financial and Merrill Lynch units.
The deal will bring a measure of closure to the bank as it concludes the largest remaining legal issue from the financial crisis.
During the talks, the bank had argued with federal prosecutors that it should not be penalized for mortgages that Countrywide and Merrill had sold before it agreed to buy those firms in 2008. In the case of Merrill, the bank argued that federal regulators pressured it to go through with the acquisition.
But that argument was significantly weakened last Wednesday when Judge Jed. S. Rakoff, of the Federal District Court in Manhattan, ordered Bank of America to pay $1.3 billion for the sale of defective Countrywide mortgages, calling the scheme a 'brazen fraud.'
The Wall Street Journal earlier reported the news of the tentative deal.
Entities 0 Name: Justice Department Count: 4 1 Name: Bank of America Count: 3 2 Name: Merrill Count: 2 3 Name: Countrywide Count: 2 4 Name: S. Rakoff Count: 1 5 Name: Merrill Lynch Count: 1 6 Name: Citigroup Count: 1 7 Name: Brian T. Moynihan Count: 1 8 Name: Federal District Court Count: 1 9 Name: Eric Holder Count: 1 10 Name: Moynihan Count: 1 11 Name: Judge Jed Count: 1 12 Name: United States Treasury Count: 1 13 Name: Wall Street Journal Count: 1 14 Name: Countrywide Financial Count: 1 15 Name: Holder Count: 1 16 Name: Manhattan Count: 1 17 Name: No Bank of America Count: 1 Related 0 Url: http://ift.tt/1y1dnye Title: Moody's downgrades outlook for UK banking sector to negative Description: Britain's big banks are exposed to multimillion pound fines and lawsuits that could dent their profits, the rating agency Moody's warned on Tuesday, as it downgraded its outlook for the sector because of new rules intended to prevent another taxpayer bailout.