US authorities have slapped Bank of America with a record $16.55bn (£10.2bn) fine for selling junk mortgage-backed securities, collateralised debt obligations and fraud in its mortgage activities.
The bank will pay $9.65bn in cash to federal and state regulators, while the remainder will be used to compensate investors.
The total fine covers the illegal activity of Bank of America, as well as that of Merrill Lynch and Countrywide, which the financial giant bought in the aftermath of the global financial crisis.
An independent monitor will oversee the bank as part of the settlement to ensure it keeps the bargain and makes the payments it has promised.
US regulators chased Bank of America for an $850m securitisation that it touted was made up of “prime” mortgages. Instead, many were wholesale loans from mortgage brokers that the bank knew were being poorly sold.
Southern District of New York US Attorney Preet Bharara says his office had got a jury verdict of fraud and a fine of $1bn from Countrywide and Bank of America for similar behaviour.
“For years, Countrywide and Bank of America unloaded toxic mortgage loans on the government-sponsored enterprises Fannie Mae and Freddie Mac with false representations that the loans were quality investments,” he says.
“Now, this settlement, which requires the bank to pay another billion dollars for false statements to the GSEs, continues to send a clear message to Wall Street that mortgage fraud cannot be a cost of doing business.”
New Jersey US Attorney Paul Fishman says Merrill Lynch bought up increasing amounts of mortgages, packaging them and selling them, despite knowing many were defective.
“The failure to disclose known risks undermines investor confidence in our financial institutions,” he says.
“Today’s record-breaking settlement, which includes the resolution of our office’s imminent multibillion-dollar suit for Financial Institutions Reform Recovery and Enforecment Act penalties, reflects the seriousness of the lapses that caused staggering losses and wider economic damage.”