Broken record

The market thinks Bank of America’s mortgage nightmare is almost over

August 21, 2014
August 21, 2014

Is the worst behind Bank of America? Its shareholders seem to think so. The bank’s stock is up nearly 2% today, after it announced a long-awaited settlement over a US government probe into its mortgage practices. The $16.65 billion settlement is the US’s largest ever civil penalty leveled against a single corporation. It eclipses a similar $13 billion mortgage-related settlement JPMorgan Chase struck with the Justice Department last year.

The fine breaks down as follows: BoA will pay $7 billion in relief for homeowners struggling with mortgage payments and a $9.65 billion penalty to the Department of Justice. BofA said the settlement would shrink its pre-tax earnings by $5.3 billion—nearly half of its $11.4 billion reported profit last year.

Here’s a look the bank’s share performance so far today:

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So why are investors shrugging off one the biggest fines in US corporate history? Because it could have been worse. BofA had been haggling for weeks with regulators over a potential $20 billion settlement.

Regulators agreed to credit BoA for the billions it has already paid under a broader bank settlement for consumer relief. So most of what remains to be paid is the $9.65 billion fine. Of that, bank analyst Dick Bove of Rafferty Capital Markets estimates that BoA’s after-tax hit will only come to $4 billion. Meanwhile, the bank is on pace to outdo last year’s $11.4 billion profit.

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