Boston, MA 01/07/2013 (wallstreetpr) – Bank of America Corp (NYSE:BAC) still has to exorcise the ghosts from the take over of Countrywide Financials in 2008. Bank of America has already spent at least 10 times the amount it paid for the acquisition to settle claims and pay penalties.
The acquisition and the nightmare
Bank of America Corp (NYSE:BAC) had launched an acquisition spree in 2008 and one of its targets was Countrywide Financial. The valuations appeared to be very good and the company came with a dowry of strong mortgage exposure. The dream acquisition soon turned out to be nightmare as the financial crisis exposed Bank of America Corp to several lawsuits relating to mis-selling of mortgages to other financial institutions. The amount settled by Bank of America is said to be close to $50 billion.
Among one of the latest settlement entered by Bank of America Corp (NYSE:BAC) is with the Pension Reserves Investment Management Board, Massachusetts. The amount of settlement is $17.3 million. Out of this, $11.3 million will be used to compensate investors, while the remaining $6 million will be handed over to the state. This is apart from the $500 million mortgage settlement reached in December 2013.
Though such settlements lead to a major cash outflow, they are welcomed by the industry. Once such things are off the back, the bank can concentrate on its core businesses.
Upgrades by analysts
Analysts seem to have taken such settlement in their stride. Recently, Citigroup upgraded Bank of America Corp (NYSE:BAC) to a ‘buy’. Retail as well as hedge funds seem to be looking at the performance of the bank as well as the current macroeconomic scenario. The bank has already a good efficiency ratio of 76% for the first nine months. With $68.1 billion in revenues, the bank declared expenses of $51.9 billion. The current efficiency ratio is higher than its peers, mainly on account of the settlements as well as legal expenses. Bank of America is already targeting costs as part of its restructuring measures. Once the settlements taper off, there will be a boost in the profitability as well.
