Bank of America Settlement: Largest in History

Bank of America paid the largest settlement in history...and they weren't happy about it. Photo: Sadik Demiroz/Getty Images

On August 21, 2014, Bank of America agreed to pay the U.S. Justice Department $16.6 billion, the largest settlement in U.S. history. The settlement will consist of a $9.6 billion fine and $7 billion in help for people behind on their mortgages.

Why? The bank must pay for bad mortgage-backed securities sold by Countrywide and Merrill Lynch. BofA bought them in 2008, saving them and strengthening the U.S. financial system during the banking crisis.

Countrywide was one of the nation's largest mortgage lenders. Merrill Lynch was a premier wealth management bank.

These acquisitions were supposed to help Bank of America be better positioned in those markets when the recession ends. The idea was they would make the bank more diversified and competitive. Instead, uncertainty over who would pay for the bad debts have hung over BofA ever since. In addition, the Bank has paid more than $50 billion in penalties over the years.

This settlement is larger than the ones paid by Citigroup ($7 billion in July) and JPMorgan Chase ($13 billion in November 2013). (Source: Politico, Bank of America Pays $17 Billion, August 7, 2014; Bank of America Annual Report)

What Is Bank of America?

Bank of America is one of the world's largest financial institutions. It reaches 50% of all U.S. households and serves 55 million customers with 6,100 bank locations, 18,500 ATMs and online banking with nearly 30 million users.

Bank of America has 4 million small business customers. It operates in more than 40 countries.

In 2013, it had $38.8 billion in revenue. This was down from the $94.4 billion it made in 2011, but up significantly from the $68.5 billion in 2007, before its acquisitions. 

Its net income was $11.4 billion, up significantly from two years earlier, when its profit was just $1.5 billion.

It earned $14 billion in 2007. 

Bank of America is well-capitalized from deposits from extensive consumer and small business customer base. It is the U.S. leader in total deposits. Nearly 80% of its revenue comes from this base.