After years of fighting law-suits in court with Department of Justice, Bank of America Corp (NYSE:BAC) finally got rid of its long-standing burden by agreeing to pay almost $17 billion to federal authorities. The exact figure being $16.65 billion, it is the largest amount to be paid towards settlement of dispute by any single organization. Other entities of the banking sector which had also been pulled up in light of 2008 meltdown had been made to pay a lesser settlement figure namely $13 billion by JP Morgan Chase and $7 billion by Citigroup.
Problems for Bank of America Corp (NYSE:BAC) began when it acquired two financial companies namely Countrywide Financial Corp and Merrill Lynch & Co in 2008 only to discover later that most of the loans given out by them were toxic in nature. However, in-depth probe by the Justice Department managed to prove that part of the culpability belonged to Bank of America too. Things improved for the bank only when Brian Moynihan stepped into the CEO’s shoes in 2010 and began slowly steering the organization out of the legal quagmire.
For Moynihan, it was an unpleasant but necessary ordeal if the bank’s performance was to improve in the coming years. Over the last four years, Bank of America Corp (NYSE:BAC) has resolved disputes worth $70 billion in an effort to cushion the impact of housing loan fiasco. All of this has distracted officials from the core business of banking and earning profits, as Moynihan observes –
“It looks like I’m sweating and working, and they look pretty comfortable halfway through this race. What we did in 2012 is we’ve emptied out that backpack, and now guess who wins the race?”
The good news is that the news of the settlement triggered an upsurge in the stock and caused it to rise by 4.1%. One of the most renowned cheer-leaders for this bank has been Warren Buffett who has expressed confidence in the CEO’s capability in bringing the organization back to its feet and sending it soaring high up into the sky. (You can see entire list of Warren Buffett’s holdings).
Most vocal, however, is Jim Cramer who feels that it was unfair on part of the Justice Department to levy such a high settlement figure on Bank of America Corp (NYSE:BAC) and let the actual culprits, namely the defaulting bankers, to go scot free.
This article has been writen by Vinita Basu.
