8-KFinancial EventsOther EventsExhibits & Filings

BANK OF AMERICA CORP /DE/ 8-K Report, Material Impairment (Jun 29, 2011)

Filed June 29, 2011For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

This 8-K filing from Bank of America (BAC) dated June 29, 2011, details two significant financial events impacting the company's second quarter 2011 results. Firstly, the company announced a substantial settlement agreement with The Bank of New York Mellon (BNY Mellon), acting as trustee, to resolve claims related to alleged breaches of representations and warranties and other historical servicing claims for 530 legacy Countrywide RMBS trusts. This settlement involves an $8.5 billion cash payment, subject to court approval and other conditions, and aims to significantly "clean up" mortgage-related issues stemming from the Countrywide acquisition. Secondly, the company announced a non-cash goodwill impairment charge of approximately $2.6 billion in its Consumer Real Estate Services (CRES) business segment. This charge reflects the reduced fair value of the CRES segment due to the settlement and the ongoing adverse impact of incremental mortgage-related charges and economic slowdown on the mortgage business. Additionally, BAC is recording an estimated $5.5 billion charge for representations and warranties for non-GSE exposures, with an estimated potential loss range of up to $5 billion over existing accruals for these exposures. These disclosures provide crucial insights into the ongoing financial impact of past mortgage origination and servicing activities on Bank of America's balance sheet and future earnings.

Key Highlights

  • 1Bank of America reached an $8.5 billion settlement with BNY Mellon to resolve claims related to 530 legacy Countrywide RMBS trusts, addressing alleged breaches of representations and warranties and servicing issues.
  • 2A non-cash goodwill impairment charge of approximately $2.6 billion is being recorded in the second quarter of 2011 for the Consumer Real Estate Services (CRES) business segment.
  • 3An additional charge of approximately $5.5 billion is expected for representations and warranties on non-Government-Sponsored Enterprise (non-GSE) exposures.
  • 4The company estimates a potential loss range of up to $5 billion over existing accruals for non-GSE representations and warranties, excluding further potential losses from securities law claims, servicing claims, or indemnity claims.
  • 5The settlement is subject to final court approval, IRS private letter rulings, and other tax law opinions, with potential withdrawal conditions for BAC if certain criteria are not met.
  • 6The filing also provides preliminary information regarding the company's financial results for the second quarter ending June 30, 2011, though specific figures are not detailed in this 8-K.
  • 7Bank of America explicitly states its intention to "continue to act aggressively and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."

Frequently Asked Questions

This 8-K filing announces two major events: a significant settlement agreement with BNY Mellon to resolve claims related to legacy Countrywide mortgage-backed securities trusts, and a substantial goodwill impairment charge for the Consumer Real Estate Services segment. It also provides preliminary insights into BAC's financial performance for Q2 2011.

The settlement requires Bank of America to make an $8.5 billion cash payment, subject to court approval. This is intended to resolve a broad range of claims, including alleged breaches of representations and warranties and servicing issues for 530 legacy Countrywide RMBS trusts. The company also anticipates an additional charge of approximately $5.5 billion for representations and warranties on non-GSE exposures.

Bank of America is recording a $2.6 billion non-cash goodwill impairment charge in its Consumer Real Estate Services (CRES) segment. This reflects a reduction in the fair value of that business segment, attributed to the impact of the settlement and the ongoing adverse effects of mortgage-related charges and the economic slowdown on its mortgage operations.

No, the settlement does not cover all legacy Countrywide-issued transactions. It also does not release investors' securities law or fraud claims based on disclosures made during their purchase decisions. Furthermore, claims by monoline insurers or financial guarantors with independent repurchase rights are not released. Bank of America cannot reasonably estimate the potential losses from these excluded claims.