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Bank of America agrees $16bn payout

Bank of America's $16bn settlement for having mis-sold mortgage-backed securities is undoubtedly painful, but it's the bank's growth prospects that matter most
August 12, 2014

Bank of America (US: BAC) must be smarting. After all, it agreed a huge $16bn (£9.5bn) settlement with the US Justice Department earlier this month for having mis-sold mortgage-backed securities prior to the financial crisis.

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But grim though that is, it isn’t disastrous either. To begin with, most big US banks have reached similarly mind-boggling settlements in recent years - in short, the lenders are well prepared. There's also good reason to think that this particular settlement may bring the era of mega-settlements in the US to an end.

Of more long-term significance is the well entrenched US economic recovery: the IMF expects the US economy to grow nearly 2 per cent in 2014. That’s good news for US banks generally and Bank of America’s second quarter figures last month revealed solid enough progress. Indeed, the bad debt charge at the half-year stage tumbled over 50 per cent year-on-year, the capital cushion looks robust, and earnings are holding up (after adjusting for litigation costs).