Is Bank of America the DOJ’s Next Target?



Main Street never thought it would see the day. It appears as though the U.S. Department of Justice is finally holding those accountable who had a hand in the late-2000s financial crisis. The big cake that regulators took home this week and last was the pending $13 billion settlement with JPMorgan Chase (NYSE:JPM), America’s largest bank by assets. The settlement, which ostensibly leaves the door open for criminal investigations, is a rare “win” for regulators who have been put under enormous pressure to make heads roll, so to speak.

If the pending settlement with JPMorgan is a $13 billion cake, then the staff of the U.S. Attorney’s office just laid out the recipe for the icing. In a 10-Q filing with the Securities and Exchange Commission, Bank of America (NYSE:BAC) revealed that the attorney’s office intends to recommend that the DoJ file a civil action against affiliates of the bank — chiefly, Countrywide Financial, a troubled lender that Bank of America bought for $4 billion in 2008 — related to the securitization of residential mortgage-backed securities.

The lawsuit recommendation is just the latest in a long string of legal suits brought against the bank. New York Attorney General Eric Schneiderman, who has been one of the most public faces of the regulatory, still appears set to file a suit related to home loan securitization against Merrill Lynch, a subsidiary of Bank of America.

The recommendation that the DoJ file a civil action against Bank of America affiliates bears more weight now that it would have just a few months ago, largely thanks to the development of the case with JPMorgan. The $13 billion settlement sought with that bank would be the largest single penalty charged against a single bank in history, and observers have speculated from the onset that the relative success of the regulatory action to date could give the DoJ momentum in its actions against other banks.

The possible DoJ suit could drag Bank of America further “down the rabbit hole into Alice in Wonderland,” as company lawyer Brendan Sullivan put it to Reuters last week. The bank recently concluded a four-week trial over the alleged mortgage fraud committed by its Countrywide Financial unit during the months and years leading up to the financial crisis. The suit was the first case of its kind to make it to trial in the wake of the crisis.

Last quarter, Bank of America revealed that it increased its estimate of potential losses from regulatory action from $2.8 billion to $5.1 billion. This number is in addition to the nearly $50 billion the bank has spent so far extinguishing the numerous legal fires that cropped up in the wake of the financial crisis and as a result of its acquisition of Countrywide Financial.

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