BofA Discloses Probes Amid Surge in Potential Legal Costs

Bank of America Branch
Home mortgage services are advertised on a sign displayed at a Bank of America Corp. branch in Manhattan Beach, California. Photographer: Patrick T. Fallon/Bloomberg

Bank of America Corp., the second-biggest U.S. lender, disclosed new probes into its mortgage and foreign-exchange businesses and boosted an estimate of potential legal losses by 20 percent to $6.1 billion.

The developments were reported in an annual regulatory filing yesterday by the Charlotte, North Carolina-based company. The fresh estimate of litigation expenses, which concerns costs that aren’t covered by reserves as of Dec. 31, compares with $5.1 billion at the end of the third quarter.

New claims could hinder Chief Executive Officer Brian T. Moynihan’s effort to clean up fallout from the 2008 credit crisis, when his predecessor bought Countrywide Financial Corp. and Merrill Lynch & Co. The disputes that followed with regulators, investors and customers have cost more than $50 billion. Much of the sum has been tied to faulty home loans, servicing and foreclosures inherited from Countrywide.

The latest mortgage investigation involves loans backed by the Federal Housing Administration, according to yesterday’s filing. The U.S. Attorney’s Office in Brooklyn, New York, is probing the compliance for loans originated by the firm after May 2009, according to a person with knowledge of the matter.

The inquiry follows the firm’s $1 billion settlement in 2012 for FHA-backed loans originated by Countrywide, the subprime mortgage firm acquired by Bank of America. In that case, the government accused the lender of knowingly making loans insured by the FHA to unqualified home buyers.

Foreign Exchange

Bank of America also said governments in North America, Europe and Asia are examining several participants including the company for conduct in foreign-exchange markets spanning several years. The lender said it’s cooperating with inquiries.

At least 20 employees of global banks have been fired, suspended or put on leave since Bloomberg News first reported in June that dealers said they shared information about client orders to manipulate benchmark rates used in the $5 trillion-a-day currency market. No firms or traders have been accused of wrongdoing by government authorities.

Bank of America said in October the Department of Justice may file another suit tied to mortgage bonds. The firm had warned in its third-quarter filing that a U.S. attorney’s office planned to recommend civil action tied to the bundling of home loans into securities.

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