Bank of America is closing in on a deal to pay the biggest US banking settlement in history, in a move that could serve as a riposte to European complaints that American watchdogs are unduly targeting their banks.
The company is reportedly set to pay $16.5 billion (£9.8 billion) to resolve investigations into mortgage securities sold in the run-up to the financial crisis.
If confirmed, the settlement would eclipse the $9 billion imposed upon BNP Paribas earlier this year for sanctions busting, which tipped the French bank into its biggest-ever quarterly loss.
JP Morgan paid $13 billion to settle similar mortgage-related claims last year. Citigroup paid $7 billion last month.
Bank of America inherited many of the issues through its purchases of Merrill Lynch and Countrywide Financial during the tenure of former chief executive Kenneth Lewis.
His successor, Brian Moynihan, has been working to rid the bank of the mortgage liabilities it was exposed to through the deals.
Around $9 billion is expected to be paid in fines and the rest in support to struggling American homeowners, with negotiations said to have heated up in recent days.
The scale of American penalties for European banks has sparked alarm on the Continent. France has led the protests, with backing from Germany and the UK.
Some feel European institutions are being victimised. Others, notably Andrew Bailey, deputy governor of the Bank of England, have voiced concerns that the sheer scale of the penalties will hamper attempts to re-build banks’ capital.
However, the Bank of America settlement also comes at a good time for President Obama, who is facing mid-term elections in the US.
The settlements with JP Morgan and Citigroup, and the one expected with Bank of America, are the product of a taskforce set up under his orders in 2012 to examine alleged fraud in the sub-prime mortgage securities that helped fuel the financial crisis. The move came after his administration had been criticised for not being tough enough on those blamed for contributing to the crisis.
David Buik, chief City commentator at the broker Panmure, said: “This proposed fine has perfect political timing written all over it — just ahead of mid-term elections, where President Obama is set to do badly. These misdemeanours are so old, they have dust on them.”
He added: “It’s just perfect for the US authorities — it gets them off the ‘prejudiced’ allegations.”