B of A Nears $16B-$17B Deal; Banks' Living Wills 'Too Sanguine'

Receiving Wide Coverage ...

BofA's Very Big Deal: Bank of America has reached a tentative agreement with the Justice Department to pay between $16 billion and $17 billion to settle charges related to the sale of shoddy mortgage-backed securities, according to multiple news reports. The expected deal is a bit of an about-face for BofA, which just a few weeks ago was drawing the line at a $13 billion fine and protesting that it was being unfairly held responsible for the legacy issues of its acquisitions Merrill Lynch and Countrywide Financial. Two events over the course of a single day reportedly caused the bank's shift. The New York Times says the bank's confidence in its ability to weather a trial was shaken by a July 30 ruling by federal district judge Jed Rakoff, who ordered BofA to pay $1.3 billion in a separate case related to Countrywide's Hustle mortgage program. The Wall Street Journal places more weight on a phone call between BofA chief Brian Moynihan and Attorney General Eric Holder. "Mr. Holder told Mr. Moynihan that if the bank didn't bring its offer closer to the government's demand, Justice Department lawyers could file a lawsuit the next day," the paper reports. Apparently the combination of the two was enough to convince BofA to cave. BofA would pay the government roughly $9 billion in cash, with the remainder of the penalty going to consumer relief. While the settlement would be a victory for the Justice Department, some industry observers argue that even a hefty penalty won't take a big toll on BofA. "Will the DOJ provide the public with the key information on investor losses, Bank of America profits, the names of involved executives, specific laws broken and the actual systemic illegal schemes and activities?" Dennis Kelleher, head of nonprofit advocacy group Better Markets, asked the Times. Wall Street Journal, New York Times, Financial Times

BofA to Up Dividend: In other BofA news, the bank will raise its dividend for the first time in seven years. The company announced that its quarterly dividend will increase from one cent to five cents a share now that the Federal Reserve has given its capital plan the go-ahead. The news is likely to cheer investors, writes John Carney of "Heard on the Street," but "management still has more work to do to rebuild credibility and show its business is cooking with gas." Wall Street Journal, New York Times

Wall Street Journal

Nobody expects the Spanish Inquisition — or a sharp rebuke over the quality of their living wills. "Bank officials were surprised" when the Federal Reserve and the Federal Deposit Insurance Corp. ordered 11 financial institutions to clean up their bankruptcy plans, according to the Journal. "A senior executive at one of the banks noted his firm got a 19-page memo less than three hours before the public release by the Federal Reserve and FDIC." The article explains more about regulators' specific concerns, including their impression that banks make a lot of "optimistic assumptions related to derivatives and other trades that are settled through clearinghouses" and that Wall Street is "too sanguine about its ability to avoid some of the problems that contributed to the 2008 financial crisis." A separate "Heard on the Street" column notes that regulators ordered banks to reform the structure of derivatives contracts. The column speculates the move "is meant to bring banks and investors … to an agreement" so that derivatives contracts "allow for a short-term suspension of early termination rights when a bank enters insolvency or resolution proceedings."

Student loan debt can have a long-lasting effect on borrowers' quality of life, according to a survey of 30,000 college graduates of all ages. "Even 24 years after graduation, students who borrowed more than $25,000 are less likely to enjoy their work and are less financially and physically fit than their counterparts who graduated without debt," the Journal reports.

Financial Times

Why is Goldman Sachs so eager to develop a new instant-messaging service? The FT takes a look at some popular theories, ranging from the mundane (the Bloomberg option is expensive) to the suspicious (encryption technology "could come in handy for more, erm, sensitive messages"). The article also includes the revelation that the code name for the chat project, Babel, was inspired by a short story by Jorge Luis Borges. Who knew Wall Street was into magic realism?

New York Times

"Big-name Bitcoin supporters are stepping up the pressure on New York State's top financial regulator to extend the comment period for the state's new virtual currency rules," the Times reports. The Bitcoin Foundation told New York's superintendent of financial services Benjamin Lawsky that the virtual currency community needs more time to review the proposed rules since many of its members are unaccustomed to sorting through financial regulation.