Settlement to cost Bank of America $8.5bn
BANK of America (BoA) confirmed that it has settled with mortgage bond investors yesterday, agreeing to pay out $8.5bn to 22 investors who lost money on products they bought before the financial crisis.
The bank said that it expects to suffer charges of over $20bn overall, which will push its second-quarter results into the red.
However, its shares rose sharply as investors priced in the certainty of knowing the cost of the case, which has been in play since October. Its stock closed up 2.77 per cent.
“Investors can now start attaching a number to these unknowns and what they will cost the bank. With the swipe of a pen, they’ve dealt with a large chunk of these issues,” said analyst Paul Miller of FBR Capital Markets.
Yesterday’s settlement is the third in six months for BoA, following similar deals with Fannie Mae and Freddie Mac, and Assured Guaranty, which cost $2.8bn and $1.6bn respectively.
Meanwhile, Citigroup struck a deal to settle a case with Lehman Brothers International (Europe), over $2.5bn in assets that Citi had held for the bank. The Lehman estate, advised by PricewaterhouseCoopers, will pay Citi custodian fees in return for getting the assets back.