In a statement announcing second quarter earnings, Bank of America reported a 43 percent decline in profit.
This loss is primarily attributed to the $4 billion in legal expenses Bank of America paid to settle litigation over its subprime lending practices. The release shows that net income decreased from $4.01 billion in the first quarter to $2.29 billion in the second quarter.
“Mortgage-related legal expenses continue to dog Brian T. Moynihan, 54, in his fifth year as chief executive officer,” Bloomberg reported. “Through the first quarter, the bank had booked more than $55 billion of costs tied to home loans, foreclosures or bonds backed by mortgages, mostly because of his predecessor’s 2008 purchase of subprime lender Countrywide Financial Corp. The second-quarter legal costs included a $650 million deal to resolve all mortgage-bond litigation with insurer AIG.”
Since the 2008 financial crisis, banks like Bank of America have been forced to provide compensation after approving bad mortgages for homeowners. Originally, AIG wanted Bank of America to pay $8.5 billion to settle AIG’s legal action against the bank.
“Mortgage-bond investors have been demanding that the bank repurchase loans that were based on faulty information,” Bloomberg reported.
Bank of America is also facing settlement issues with the Department of Justice, is currently investigating investment banks for their faulty subprime lending habits preceding the 2008 financial crisis. According to Bloomberg, U.S. prosecutors are demanding a $17 billion settlement, and since Bank of America tried to bring the price down to $12 billion, “talks have stalled.” (RELATED: Citigroup Agrees To Pay $7 Billion In Subprime Mortgage Suit)