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As legal woes mount, BofA raises estimate of possible litigation-related losses to $6.1B

  • Bank of America (BAC) says in its annual 10-K filing that the U.S. Attorney’s Office for the Eastern District of New York is investigating the bank’s compliance with the Federal Housing Administration’s direct endorsement program.
  • Also, government authorities in North America, Europe and Asia are conducting probes and launching inquiries into BAC's conduct and practices in certain foreign exchange markets over multiple years.
  • BofA bumped up by $1B its latest estimate of possible litigation-related losses to $6.1B vs. a year-ago estimate of $3.1B.
  • The bank also reached a deal with Berkshire Hathaway (BRK.A, BRK.B) to amend terms so that it will have to wait at least five years to redeem preferred stock bought in 2011.
Comments (30)
  • djejr1
    , contributor
    Comments (16) | Send Message
     
    Is it ever going to end?
    25 Feb, 06:03 PM Reply Like
  • Rhinoish
    , contributor
    Comments (83) | Send Message
     
    yes, when you sell your shares
    25 Feb, 06:11 PM Reply Like
  • djejr1
    , contributor
    Comments (16) | Send Message
     
    Not planning on selling. We'll suffer together.
    25 Feb, 06:21 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8145) | Send Message
     
    BAC is starting to resemble the sorority frosh at the frat party who has had too much to drink and her sisters don't know where she is.
    25 Feb, 08:25 PM Reply Like
  • bibol11
    , contributor
    Comments (57) | Send Message
     
    I do not know what they are talking about. Are they talking about BOA acquisitions after the bailout. That the government wanted them to buyout.
    25 Feb, 08:36 PM Reply Like
  • Hello Again 83
    , contributor
    Comments (431) | Send Message
     
    I dont buy it but even if true it is a drop in the bucket to BAC. For those of us who bought our shares in 2008 they have more than tripled. If its not broken dont fix it.
    25 Feb, 06:32 PM Reply Like
  • DoowopDave
    , contributor
    Comments (205) | Send Message
     
    If you bought for under $5 it was in 2009, not 2008.
    25 Feb, 07:33 PM Reply Like
  • Sean Erickson
    , contributor
    Comments (246) | Send Message
     
    Im surprised berkshire would agree to that deal. Of course bac probably wouldnt have redeemed the preferred anyway but locking in the low returns seems odd to me.
    25 Feb, 06:45 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2482) | Send Message
     
    It gives BAC the ability to count Berkshire's preferred shares towards Tier 1 capital. Higher tier 1 capital means a stronger balance sheet which should translate into higher dividends/buybacks and a higher share price. Berkshire got a ton on warrants when they made that investment, so they are highly levered to a continued rise in the price per share of BAC. Its a shrewd move by Buffet.
    25 Feb, 07:10 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Who said that Brk didn't get something in return. Buffett is not an easy mark. Especially when the other party screwed up. We have to wait for the Brk filing next quarter to see what Brk extracted from BofA.
    25 Feb, 11:29 PM Reply Like
  • skyaboveyou
    , contributor
    Comments (4) | Send Message
     
    Seems to me they did. They guaranteed that they would keep getting those 6% for over 5 more years, which is a decent fixed income return for berkshire insurance subsidiaries. Plus, uppon redemption, if I read correctly (and I'm not sure of this part), they will have to pay taxes over the profit (because it seems that those 5B preferred are on the books as 2.9 B), the latter it's paid the lower the annualized tax. Locking the rate at 6% probably means that they don't think it likely that BAC would miss payments.
    Plus, improving the tier ratios might allow for more repurchases, improving the warrants return.
    Seems like a win/win situation for both parties, my favourite kind of deal
    26 Feb, 06:09 AM Reply Like
  • Sean Erickson
    , contributor
    Comments (246) | Send Message
     
    I understand now, the preferred will be exchanged when the warrants are exercised, which will now be at least 5 years away.
    26 Feb, 11:32 AM Reply Like
  • Sean Erickson
    , contributor
    Comments (246) | Send Message
     
    6% is a pretty weak return(about 5% after tax) for Berkshire. I dont think berkshire will owe additional tax upon redemption as preferred will be exchanged for cost of warrant exercise. More I look at it, the more I think it is a win/win. Only downside for berkshire that I see is that if BAC were to initiate large dividends over the next few years the berkshire would miss out a bit (unless there are anti-dilution adjustments) by not converting earlier.
    26 Feb, 11:35 AM Reply Like
  • jackooo
    , contributor
    Comments (1489) | Send Message
     
    Berkshire likes paying taxes. Doesn't anyone listen to Buffet?
    27 Feb, 04:00 PM Reply Like
  • mphill47
    , contributor
    Comments (482) | Send Message
     
    Once again the Feds are sucking BAC dry for problems they were ultimately responsible for.
    25 Feb, 07:08 PM Reply Like
  • vireoman
    , contributor
    Comments (865) | Send Message
     
    Forex manipulation?
    25 Feb, 07:50 PM Reply Like
  • Ted Bear
    , contributor
    Comments (573) | Send Message
     
    ..and in turn, BAC is sucking their clients dry with tawdry fees.

     

    It always gets back to the little guy.
    25 Feb, 08:02 PM Reply Like
  • Mbrotons
    , contributor
    Comment (1) | Send Message
     
    No, never. Litigation costs will always be there. However, that does not matter as long as BAC continues to improve its metrics and increase its EPS.
    25 Feb, 08:34 PM Reply Like
  • Regarded Solutions
    , contributor
    Comments (15467) | Send Message
     
    Why is everyone so sure that BAC is being picked on? I mean they have royally screwed a huge number of homeowners and taxpayers!
    25 Feb, 08:34 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8145) | Send Message
     
    BAC has already paid tens of billions of dollars.

     

    This is turning into a revenue stream for the government.
    25 Feb, 09:54 PM Reply Like
  • djejr1
    , contributor
    Comments (16) | Send Message
     
    How did they screw homeowners? The homeowners screwed themselves. They have to take responsibility for their own actions. Neither BAC nor Countrywide held a gun to anyone's head. Buyer beware.
    26 Feb, 08:48 AM Reply Like
  • mphill47
    , contributor
    Comments (482) | Send Message
     
    I enjoy your revisionist history RS however BAC was not ultimately the culprit in your so called screw job. Easy money from the Fed and loan guarantees by Freddy and Fanny (ultumately guranteed by the Fed Gov) put non qualified buyers in homes. Their henchmen were at Country Wide Mort. Sue those guys and there is no money to collect. BAC with deep pockets is a lawyers dream. As for the taxpayers, they are really going to get screwed in the long term by 95B per month quantitative easing that we have witnessed. Put the blame on congress where it belongs.
    26 Feb, 05:03 PM Reply Like
  • jackooo
    , contributor
    Comments (1489) | Send Message
     
    Either Obama decreases unemployment or gets the money from BAC. No brainer which is easier.
    27 Feb, 04:01 PM Reply Like
  • jlbsierra
    , contributor
    Comments (4) | Send Message
     
    Countrywide screwed homeowners and taxpayers. BAC got stuck with the bill when they took on the soiled asset.
    25 Feb, 09:53 PM Reply Like
  • carpetking
    , contributor
    Comment (1) | Send Message
     
    As Brian Moynihan said; the worst is behind us. yippie
    26 Feb, 03:19 AM Reply Like
  • Regarded Solutions
    , contributor
    Comments (15467) | Send Message
     
    what a mess
    26 Feb, 06:56 AM Reply Like
  • Regarded Solutions
    , contributor
    Comments (15467) | Send Message
     
    Buffett keeps getting paid, while shareholders get the shaft.
    26 Feb, 09:05 AM Reply Like
  • TBV
    , contributor
    Comments (113) | Send Message
     
    Same old news .... priced in already.

     

    If all things are fine and dandy, you would not be able to buy this stock at this deep discount to the book. Now BAC clearly knows the outstanding issues and knows what to fix. Sooner than you think all issues will be resolved and by then you won't see this stock on sale.

     

    Warren Buffett — 'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful'
    26 Feb, 11:32 AM Reply Like
  • magi48
    , contributor
    Comments (162) | Send Message
     
    This BAC stock will not be out of trouble until 2020 with all the legal problems it has still to deal with. The court system is really back logged in the U.S. .
    26 Feb, 01:45 PM Reply Like
  • Werner Kranenburg
    , contributor
    Comments (9) | Send Message
     
    BAC has been in the news several times today concerning fines and litigation, having agreed to a $9.5bn settlement with the US Federal Housing Finance Agency over sales of mortgage backed securities and to a $25 million settlement, alongside the bank's former CEO Ken Lewis, relating to allegations it misled investors about Merrill Lynch & Co.'s financial condition in 2008.

     

    BAC is also one of several mentioned in an FT article today, that "Wall Street banks and their foreign rivals have paid out $100bn in US legal settlements since the financial crisis, according to Financial Times research..." http://on.ft.com/1fl54nM; and, see my remarks on litigation reserves http://goo.gl/qUu0Sn.
    26 Mar, 07:26 PM Reply Like
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