Bank of America Corp, the biggest US bank, agreed to pay $8.5 billion to resolve claims over soured mortgages after bondholders including BlackRock Inc demanded refunds. The company rose as much as 6.7 per cent in New York trading.
The settlement will contribute to a second-quarter loss of $8.6 billion to $9.1 billion, or 88 cents to 93 cents a share, the Charlotte, North Carolina-based bank said today in a statement. Bank of America also said it’s adding $5.5 billion to a liability reserve for future loan-repurchase demands and will record $6.4 billion in other charges including legal costs and a writedown of mortgage-unit goodwill. “This is progress in that it puts some parameters around what the total loss will be,” said Marty Mosby, a Nashville, Tennessee-based analyst at Guggenheim Securities LLC, which manages more than $100 billion, including Bank of America shares. “It’s not a great thing to pay this much, but it’s not the worst-case scenario either.”
Investors, which also include Pacific Investment Management Co and the Federal Reserve Bank of New York, demanded in October that Bank of America repurchase home loans that had been packaged into bonds by Countrywide Financial Corp, which it acquired in 2008. The settlement covers 530 mortgage trusts with an original loan balance of $424 billion, the bank said.
Fannie, Freddie
The company’s board met yesterday to discuss the settlement, which still needs court approval. The agreement follows a $3 billion deal announced in January to resolve similar claims from Fannie Mae and Freddie Mac, the US -owned mortgage firms. Bank of America said in April that it agreed to pay an estimated $1.6 billion to resolve claims with bond insurer Assured Guaranty Ltd.
“This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty,” Bank of America Chief Executive Officer Brian T Moynihan said in the statement. The company will continue to “act aggressively, and in the best interest of our shareholders.”
Bank of America declined 19 per cent this year through yesterday on the New York Stock Exchange on concern mortgage-related costs, new international capital rules and a slowing US economy will swamp earnings. The shares rose 73 cents to $11.55 at 7:30 am in New York.
Costs tied to faulty mortgages have been a moving target for Moynihan, 51. The firm previously said expenses tied to demands from bond buyers other than Fannie Mae and Freddie Mac could range from zero to as much as $7 billion to $10 billion. In a May regulatory filing, the lender said that estimate may be $11 billion to $14 billion if it made incorrect assumptions regarding the difficulties investors would face making claims.