Note: This story has been updated.
Since the 2008 financial crisis, the Bank of America has paid out nearly $56 billion in legal settlements, attorney’s fees, and forced mortgage buybacks—more than any other U.S. bank, according to a story published Tuesday by the Charlotte Observer.
And the Charlotte-based bank still faces a slew of claims that could add billions more to its legal bill and could take 10 years or more to resolve. A bank spokesman declined comment on the report Wednesday.
Litigation-related expenses totaled $4.2 billion last year and $5.6 billion in 2011, according to the company’s annual financial report to the Securities and Exchange Commission filed in late February. Those expenses include settlement costs but exclude legal provider fees for lawyers and consultants—no small piece of change.
Its most recent quarterly report, filed August 1, said it had spent $2.7 billion on litigation-related expenses in the first six months of this year—an increase of nearly a billion dollars over the same period last year.
Marty Mosby, a bank analyst with Guggenheim Securities, told the Charlotte newspaper that the bank appears to be making progress on its legal issues, but that investors are still worried. “Is there a lingering surprise that is all of a sudden going to come back and hit you in the ninth inning?”, he asked.
Among the bank’s major settlements in the past year were $2.4 billion to shareholders who sued over the Merrill Lynch acquisition in 2009, when bank officials failed to disclose the depth of Merrill Lynch’s losses; $10 billion to Fannie Mae, over bad loans the federal mortgage giant bought from the bank; and $1.7 billion to bond insurer MBIA over mortgage-backed securities that lost their value.
The bank also has offered to settle for $8.5 billion with nearly two-dozen investors who held bonds based on mortgages from subprime lender Countrywide Financial, which Bank of America acquired in 2008 as the housing bubble was bursting.
But some plaintiffs, including American International Group Inc., said the offer isn’t adequate and are delaying the deal. The New York State Supreme Court has set a September 25 deadline to hear the objections. If it rules against the offer, the bank will have to raise its ante or, as one bank official suggested in court, try to place Countrywide into bankruptcy.
Then there’s the litigation over manipulating LIBOR—the London Interbank Offered Rate used in financial products. The bank has set aside $551 million for litigation costs, according to its SEC filings. But is that enough?
Wednesday, UBS AG and its subsidiary, UBS Securities Japan Co. Ltd., closed its books on its role in the LIBOR scandal when U.S. District Court Judge Robert Chatigny in Connecticut accepted a plea deal. In total, UBS has agreed to pay $1.5 billion to cover the settlement, regulatory penalties, criminal penalties, and disgorgement related to LIBOR.
Because Bank of America had a larger value of securities in question, its cost for a LIBOR settlement could be considerably more than UBS paid. BofA’s cost could exceed $11 billion, the Charlotte newspaper said.
The bank’s troubles were a topic of discussion this week at a banking conference in Boston. Professor Cornelius (Con) Hurley of Boston University said the bank’s name came up as attendees were debating a Government Accountability Office study on whether big banks receive a financial benefit from being designated “too big to fail” (TBTF), as Bank of America has.
Such a financial benefit, critics argue, is an implied subsidy for big banks. In Hurley’s view, the GAO study should not deduct costs of regulator-required compliance efforts or the billions of dollars in penalties that big banks have paid over their misconduct. (Update: After posting this article, JPMorgan Chase & Co. agreed to pay $920 million in fines to various regulators to settle its "London Whale" trading incident.)
To do so would be subsidizing the banks’ inefficiency, argued Hurley, a former bank general counsel and now director of the Boston University Center for Finance, Law & Policy.
“These are the costs of being unmanageable,” Hurley told CorpCounsel.com. “The U.S. taxpayer should not have to foot the bill for the TBTFs choosing the [inefficient] business model they have.”