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B of A Agrees to Pay $9.5B to Settle Mortgage Lawsuit

MAR 26, 2014 6:26pm ET
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Bank of America Corp. agreed to a $9.5 billion settlement over claims tied to faulty mortgages and boosted its dividend for the first time since 2007, the latest steps to put the financial crisis behind the firm.

The lender will pay $6.3 billion in cash to Fannie Mae and Freddie Mac to resolve lawsuits claiming it misrepresented loans packaged into bonds that were bought by the U.S.-owned mortgage firms, Charlotte, North Carolina-based Bank of America said today in a statement. The company also said it will buy back about $3.2 billion of mortgage bonds from the firms.

Chief Executive Officer Brian T. Moynihan, 54, has spent more than $50 billion to resolve claims related to shoddy mortgages, most tied to his predecessor’s 2008 purchase of Countrywide Financial Corp. The firm also said today it will quintuple its quarterly dividend to 5 cents a share and repurchase $4 billion of stock after the Federal Reserve approved the lender’s capital plan.

“Shareholders have had a pretty significant wait for a change in their performance,” said Jonathan Finger, whose family-owned investment firm, Finger Interests Ltd., owns 900,000 Bank of America shares. “The financial crisis and its impact on Bank of America in particular were probably deeper than most investors expected.”

Bank of America’s payout had been stuck at 1 cent since 2009, when the lender cut the payout to conserve capital amid the financial crisis. The new dividend will begin in the second quarter, the firm said.

The lender also agreed today to pay $15 million to settle claims that former CEO Kenneth Lewis misled investors about its 2009 purchase of Merrill Lynch & Co.

Lewis, 66, who approved the purchases of Countrywide and Merrill Lynch, will pay $10 million and agreed to a three-year ban on serving as an officer or director of a public company. Bank of America also agreed to corporate-governance improvements, according to New York Attorney General Eric Schneiderman.

“Mr. Lewis consistently has made clear that the bank relied on experienced legal counsel -- both inside the bank and at a prestigious law firm -- with regard to what needed to be disclosed to shareholders,” Bruce Yannett, a lawyer for Lewis, said in a statement.

The biggest U.S. banks waited for the Fed to disclose the results of annual stress tests today before announcing how much they planned to pay out to investors through dividends and share repurchases.

JPMorgan Chase & Co., the largest U.S. lender, boosted its quarterly dividend to 40 cents a share from 38 cents and authorized a $6.5 billion stock buyback. No. 3 Citigroup Inc. failed the stress test and regulators rejected its proposal to repurchase $6.4 billion of shares and increase its dividend to 5 cents a share from 1 cent.

Wells Fargo & Co. and Morgan Stanley each announced dividend increases and stock buyback plans after passing the stress test.

Bank of America’s settlement will reduce first-quarter pretax profit by $3.7 billion, or 21 cents a share after taxes, the firm said. The company is scheduled to report results on April 16.

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