Bank of America Sets Aside $400 Million for Legal Costs
Federal regulators have been investigating the Bank of America Corporation (NASDAQ: BAC) pertaining to the currency market being manipulated. In a recent news release, the bank disclosed that in order to deal with the investigation, its legal costs have increased. As a result, the bank set aside $400 million, which in turn cut into earnings reported a few weeks ago for third quarter results.
After announcing the added financial burden, the Bank of America reported a $232 loss, equaling $0.4 per share in the quarter. Although representatives from the bank would not reveal the name of the regulators, insiders identified two specific agencies, the Federal Reserve and the Office of the Comptroller of the Currency, as spearheading the investigation.
While the investigation is nearing an end, no settlement has been finalized. This is yet another bank added to a growing list of financial institutions engaged in a foreign exchange investigation to increase anticipated legal costs, which again, lowered earnings. As required, banks must put legal reserves aside after gaining a better understanding of costs likely to pay in a possible settlement.
Focus intensified on the Bank of America’s legal costs after earnings were reported on October 15, as well as this past Thursday when the official quarterly report was filed with the Securities and Exchange Commission.
Two additional financial institutions have been dealing with a foreign currency investigation. Citigroup, Inc. (NYSE: C) reported it was lowering its profit by $600 million while JPMorgan Chase & Co (NYSE: JPM) said legal costs went up in the third quarter and that ultimately expenses could reach $1.1 billion. These investigations make it clear that regulators are cracking down.
Beyond what the Federal Reserve and comptroller’s office are doing, regulators in Britain are also closing in on deals pertaining to six banks to include Citigroup and JPMorgan Chase. British regulators anticipate that settlements will be completed by the end of November.
While not yet confirmed, the Commodity Futures Trading Commission might get involved with these civil agreements. However, the Justice Department in Washington is taking a different approach by pursuing potential criminal action against at least one bank by the end of 2014.
Currency trading, a $5 trillion market, is the world’s largest. Unfortunately, traders from several different banks are suspected of manipulating the market in an effort to drive pricesup at the end of the day for certain currencies. Of all the different financial institutions being investigated, the Bank of America is one of the smallest players.
Just this past August, Bank of America agreed to a deal with both state and federal authorities for $16.65 billion to settle civil charges connected to the sale of inferior mortgage securities. The majority of the $5.3 billion charge that hit the Bank of America in the quarter was related specifically to the cost of that settlement.
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