Bank of America Corporation
) announced yet another settlement with the Federal Housing
Finance Agency (FHFA) - the conservator of government sponsored
). This put an end to the long-drawn legal conflict pertaining to
the sale of faulty-mortgage backed securities by BofA.
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The settlement is worth nearly $9.3 billion and comes as respite
for the company, as it removes a significant legal headwind.
While BofA will pay $6.3 billion in cash to Freddie Mac and
Fannie Mae as compensation, it will buy securities worth more
than $3 billion from these GSEs.
The one-time expenses will weigh significantly on the company's
first-quarter 2014 results, as it will likely reduce the
after-tax earning per share by 21 cents.
Malpractices in the mortgage industry in the pre-crisis period
pushed Freddie Mac and Fannie Mae to the brink of bankruptcy.
Finally, these distressed mortgage lenders were bailed out by the
Thereafter, with the tightening of regulations in 2011, the FHFA
sued 18 financial organizations including BofA. These
organizations had compromised on the quality of loans sold,
thereby resulting in huge losses for investors. The taxpayers of
the country also had to bear the brunt as they indirectly paid
for the bailout.
Actually, the troubles for BofA magnified with the acquisition of
Countrywide Financial and Merrill Lynch in 2008. And the company
is still paying for it.
As per a Reuters report, BofA recently reached a settlement worth
$15 million with New York's Attorney General Eric T. Schneiderman
related to the acquisition of Merrill Lynch. It was alleged that
BofA's shareholders were misled as the bank had covered the
towering losses associated with the acquired unit.
Additionally, Kenneth Lewis, the then CEO of BofA, has been
charged with a fine of $10 million. As the chief of the company,
he was largely responsible for the loss related to the
Lewis has also been denied the right to serve as officer or
director of a public company for three years. However, his fine
will be borne by BofA.
BofA's after-hours trading on Mar 27 showed positive price
movement despite this huge settlement. This is because the Fed's
approval of the company's capital plan boosted investor
Currently, BofA carries a Zacks Rank #4 (Sell). A better-ranked
banking major worth considering is
Wells Fargo & Company
). It currently has a Zacks Rank #2 (Buy).