BofA Settles, KPMG Bank Rules, Chilton Hired: Compliance

Bank of America Corp. agreed to pay about $16.7 billion to end federal and state probes into mortgage bond sales, the harshest penalty yet related to loans that fueled the 2008 financial crisis.

The settlement, which includes $9.65 billion in cash and $7 billion in consumer relief, resolves civil investigations by government prosecutors, the U.S. said yesterday.

It is the largest civil settlement with a single entity in history, U.S. Attorney General Eric Holder said at a press conference yesterday in Washington.

The agreement cements Charlotte, North Carolina-based Bank of America’s status as the firm punished hardest for faulty mortgage practices. It eclipses Citigroup Inc. (C)’s $7 billion settlement in July and JPMorgan Chase & Co. (JPM)’s $13 billion accord in November.

Bank of America’s settlement also comes on top of its $9.5 billion deal in March to resolve related Federal Housing Finance Agency claims.

The bank expects the settlement to reduce third-quarter pretax profit by about $5.3 billion, or 43 cents a share after tax, the company said yesterday in a statement. The lender reported an $11.4 billion profit for all of last year.

Bank of America and its Merrill Lynch and Countrywide Financial units sold billions of dollars of mortgage securities that were backed by toxic loans and misrepresented the risks to investors, the government said.

The settlement doesn’t release individuals from civil claims or shield the bank from criminal prosecution, the U.S. said.

Separately, the bank can get credit toward its record $16.7 billion settlement of U.S. mortgage probes without doing a thing.

The lender, which jumped the most in 15 months in New York trading yesterday after agreeing to resolve the government claims, pledged $7 billion in consumer relief in the deal. Some of that may be satisfied as borrowers get mortgage help from firms that bought their loans or servicing rights from the bank, according to terms on the Justice Department’s website. That can even apply to assets the bank already sold.

Separately, billionaire Warren Buffett has predicted Bank of America will become a profit powerhouse once it finally resolves legal battles that have sapped funds and distracted managers.

Chief Executive Officer Brian T. Moynihan yesterday settled what he has called the firm’s last big fight over faulty home loans. Since he took control in 2010, the bank has agreed to more than $70 billion in deals to resolve claims from the housing bust.

Moynihan, 54, has blamed past disappointments on legal costs and related distractions. On a conference call with analysts in May, he blamed unexpectedly severe legal claims for crimping past profits, eroding Bank of America’s brand, limiting shareholder payouts and distracting executives.

Since then, Buffett, 83, has been Moynihan’s highest-profile cheerleader, endorsing the CEO’s strategy and shrugging off a $4 billion accounting mistake disclosed in April that forced the bank to scrap stock buybacks.

For more, see Interviews below.

Compliance Policy

KPMG Says EU Plans for Bank-Structure Overhaul Must Be Scrapped

A European Commission plan to separate lenders’ consumer and investment-banking arms must be halted, KPMG LLP, auditor to some of the region’s largest banks, said yesterday in an e-mailed statement.

Proposals to harmonize rules for bank structure across the 28-nation European Union “will not add significant value alongside other regulatory reforms,” KPMG said, while countries including the U.K., France and Germany are already pursuing their own requirements on separating lenders’ trading and deposit-taking units.

The proposal for bank-structure reform by Michel Barnier, the EU’s financial-services chief, has come under attack on multiple fronts since he presented it in January. At least 10 countries have challenged the reforms.

Interviews/Commentary

New Yorkers Will Benefit From BofA Settlement, Schneiderman Says

New York Attorney General Eric Schneiderman talked about Bank of America Corp. (BAC)’s settlement with federal and state regulators over probes into mortgage bond sales.

The $800 million to be paid to New York, a combination of cash and consumer relief, will benefit New Yorkers directly in the form of mortgage counseling and community rehabilitation.

The money “is not sticking in some government bureaucracy,” Schneiderman told Trish Regan on Bloomberg Television’s “Money Clip.”

For the video, click here.

Comings and Goings

High-Speed Traders Enlist Chilton to Improve Image in Washington

Former U.S. Commodity Futures Trading Commission member Bart Chilton, an outspoken critic of some high-speed trading practices while at the agency, was enlisted in a Washington-based effort to improve the image of an industry beset by regulatory and legislative scrutiny.

The Modern Markets Initiative, organized by four firms last year, hired former Bank of America Corp. and Nasdaq OMX Group Inc. (NDAQ) executive Bill Harts to lead its efforts, the group said in a statement yesterday. Chilton, now a senior adviser at law firm DLA Piper LLP, was hired to advise on regulatory and public policy, according to the statement.

High-speed traders have faced increased scrutiny this year by lawmakers and regulators.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Andrew Dunn, Joe Schneider

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