The deal immediately drew ire from some consumer advocates because Bank of America has yet to reach a separate settlement with state attorneys general that would help homeowners.
“We would hope that homeowners get the same sort of compensation that investors did,” said Ellen Taverna, a legislative associate at Washington-based National Association of Consumer Advocates, which has been pushing for foreclosure-prevention programs. “They should be treated the same way.”
The move by Bank of America raises the possibility that other big banks, such as Citigroup, J.P. Morgan Chase and Wells Fargo, which also originated mortgage-backed securities during the pre-recession housing boom, could reach similar settlements with investors. But Bank of America, which bought mortgage originator Countrywide Financial for $4 billion in 2008, carried by far the worst exposure to claims from investors burned by toxic securities it mass-produced, analysts said.
“J.P. Morgan, Wells Fargo, they have their own crosses to bear . . . but it’s nowhere near the burdens of Countrywide,” said Paul Miller, an analyst who covers Bank of America for FBR Capital Markets in Arlington. Miller added that other banks are likely to settle for smaller amounts.
Markets largely cheered the settlement, which removed some uncertainties about Bank of America’s future liabilities stemming from souring Countrywide mortgages. The bank’s stock ended the day up nearly 3 percent, closing at $11.14 per share. The New York Stock Exchange financial sector index, which measures the performance of large financial firms including J.P. Morgan, Citigroup, Goldman Sachs and Morgan Stanley, ended the day up 2 percent on the news of Bank of America’s settlement.
“I think it’s a net positive for Wall Street,” said Miller, the FBR analyst. “It starts to put some stuff behind it.”
The $14 billion could grow by $5 billion to settle additional mortgage-related claims, company officials said. It marks the most significant attempt yet by the bank, the United States’ largest by assets, to “put the financial crisis behind us,” chief executive Brian Moynihan said on a conference call Wednesday. This is “a major step forward for our company.”
But significant obstacles remain for Bank of America, including a settlement being pursued by a coalition of state attorneys general and federal officials over widespread problems in the foreclosure practices of big banks.