Bank of America Corp said it expected to take more than $20 billion in charges after settling with mortgage bond investors, resulting in a second-quarter loss.
The $8.5 billion settlement removed a question mark that had been hovering over the bank since October, and its shares rallied.
The deal, combined with other settlement-related charges, was within the range that Bank of America had disclosed in a filing in May. The settlement still requires court approval.
Bank of America settled with a group of investors, including BlackRock Financial Management who alleged the bonds they bought from Countrywide Financial were packed with mortgages that should never have been sold. Bank of America bought Countrywide, once the largest U.S. mortgage lender, in 2008.
The settlement could pressure other big banks, including JPMorgan Chase & Co and Wells Fargo & Co to settle similar lawsuits with mortgage bond investors.
Bank of America said it expected to post a loss of 88 cents to 93 cents per share for the quarter. Excluding special items, Bank of America said it expected to earn 28 cents to 33 cents a share. Analysts had been expecting 28 cents.
The bank said its charges would include the $8.5 billion settlement with bond investors and another $5.5 billion to cover expected payments to other mortgage bond investors.
The bank is also expecting to take $6.4 billion in other charges linked to mortgages.
The $8.5 billion settlement covers claims from 22 institutional investors, including BlackRock, Pacific Investment Management Co and Western Asset Management.
Shares of Bank of America rose 3.7 per cent to $11.22 in trading before the market opened.
Meanwhile, Progress on Greece’s debt crisis and a huge bank settlement are sending stocks higher shortly after the opening bell.
The Dow Jones industrial average is up 31 points, or 0.3 per cent, at 12,219 in early trading Wednesday. The Standard & Poor’s 500 index is up 5, or 0.4 per cent, at 1,301. The Nasdaq composite is up less than 1 point at 2,729.
Greek lawmakers passed a controversial austerity bill that was needed to get emergency loans. The passage puts Greece closer to avoiding a debt default, which would have shocked global markets and frozen lending to other heavily indebted European countries.
Bank of America Corp. rose three percent after reaching an $8.5 billion settlement with investors over claims that the bank sold them low-quality mortgage-backed securities.