BofA in Talk to Pay At Least $12 Billion to Settle Probes -- Update

By Dow Jones Business News, 
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By Devlin Barrett, Dan Fitzpatrick and Christina Rexrode

Bank of America Corp. is in talks to pay at least $12 billion to settle civil probes by the Justice Department and a number of states into the bank's alleged handling of shoddy mortgages, according to people familiar with the negotiations.

At least $5 billion of that amount is expected to go toward consumer relief--consisting of help for homeowners in reducing principal amounts, reducing monthly payments and paying for blight removal in struggling neighborhoods, these people said.

The North Carolina bank's total tab to end government probes and lawsuits related to its precrisis conduct is increasingly likely to surpass the record $13 billion that J.P. Morgan Chase & Co. paid last year to settle similar allegations, these people said. Bank of America has already struck a $6 billion settlement, by the Justice Department's measure, with the Federal Housing Finance Agency.

If finalized, a settlement on that scale would mark another major penalty for a large financial institution, as the Justice Department presses a number of cases against global banks.

Paying $5 billion to help homeowners is part of a broader scenario Bank of America has floated, in which it would pay $12 billion in addition to the previous $6 billion FHFA settlement, these people said.

Government negotiators, however, are pushing the bank to pay billions more and put up more cash as part of the deal. Under the terms of a recent proposal made by the bank, at least half of the settlement would be in the form of help for homeowners, but that can be done in ways that make the actual cost to the bank significantly less than a direct cash payment to agencies.

Talks between the two sides have heated up in recent days, with meetings taking place at the Justice Department on Monday and the week before, these people said. Still it is unclear when they might reach a tentative settlement given that they still remain far apart on the size of any penalty to be levied by the Justice Department.

Bank of America's legal charges have been a bane to its earnings, with the bank paying about $60 billion since the financial crisis to settle lawsuits and buy back mortgage securities. At an investor conference last week, Chief Executive Brian Moynihan noted that the impending Justice Department settlement is a remaining wild card. "Of the big stuff," he said, "that's really the one that's left out there."

The consumer-relief portion of a settlement would likely include measures similar to those used in the J.P. Morgan deal-- reductions of mortgage principal for some customers, reductions of monthly payments for others and money spent on blight removal in parts of the country where the housing downturn left abandoned eyesores, these people said.

Under the terms being discussed, Bank of America would pay at least $1 billion more in consumer relief than the $4 billionJ.P. Morgan agreed to spend on those efforts in November as part of its settlement of a government civil probe into how it packaged shoddy mortgages into securities.

Those residential mortgage-backed securities were a major ingredient leading to the housing and financial crisis in 2008. Bank of America's also agreed to pay $6 billion to FHFA, while J.P. Morgan settled for $4 billion.

The two sides haven't come to terms yet on Bank of America's total settlement figure. A perfect comparison between the Bank of America talks and the $13 billion deal struck with J.P. Morgan is difficult, because Bank of America has settled with some government agencies that were part of the J.P. Morgan deal, and there are other states involved in the Bank of America talks that weren't a part of the J.P. Morgan discussions.

If the two sides cannot reach a deal, the Justice Department would have to decide whether to file a civil lawsuit against the bank.

Attorney General Eric Holder has said that before he leaves his job, he wants to resolve a number of high-profile probes of financial firms' conduct leading up to the economic collapse. He has also said that he views the structure of the J.P. Morgan deal as a template for deals with other banks, and that the consumer relief issue was an important component to reaching a settlement. Some of the consumer relief measures are novel, such as blight removal, and dollars spent by the bank on certain areas are worth more to them than dollars spent elsewhere.

The sometimes creative terms of consumer relief means the bank could find ways to lessen the actual cost of a settlement.

For instance, in the J.P. Morgan settlement, the bank agreed to provide at least $1.2 billion in mortgage principal reduction to customers - but for every dollar of principal reduction granted by the bank in the hardest-hit parts of the country, it will get $1.25 worth of credit toward the settlement. Depending on the details of which mortgages they target for principle reduction, the bank could boost that to as much as $1.43 toward the settlement cost. Another condition of the J.P. Morgan deal was that an outside monitor, approved by both sides, would oversee the bank's spending on consumer relief.

Write to Devlin Barrett at devlin.barrett@wsj.com, Dan Fitzpatrick at dan.fitzpatrick@wsj.com and Christina Rexrode at christina.rexrode@wsj.com

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  (END) Dow Jones Newswires
  06-05-141940ET
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