Bank of America faces $6bn penalty

The US government agency that secured a big slice of the record $13 billion penalty against JPMorgan Chase is demanding even more from Bank of America, as it ratchets up pressure on large banks.

Regulators at the Federal Housing Finance Agency are seeking a penalty of more than $6 billion from Bank of America, compared with the $4 billion to be paid by JPMorgan, according to people familiar with the matter.

JPMorgan agreed to pay a total of $13 billion to a variety of state and federal agencies in a phone call on Friday night between Jamie Dimon, chief executive, and Eric Holder, attorney general. The penalty, if confirmed, would be the biggest imposed on a single company by US authorities.

Largest settlement
The $4 billion portion that JPMorgan has agreed to pay the Federal Housing Finance Agency may end up being the largest single amount, although the remaining $9 billion – $5 billion cash and $4 billion forgiveness of consumer debt – is being divided up between the department of justice and New York's attorney-general.

The agency is the housing regulator that oversees Fannie Mae and Freddie Mac, the government-backed mortgage companies that came close to failing in 2008 because of the bad mortgage-backed securities they acquired from banks.

The agency has sued 17 institutions, asserting they broke securities laws when selling the securities to Fannie and Freddie. Bank of America has the biggest potential exposure, with a notional value of the securities of more than $57 billion compared with $33 billion at JPMorgan. Bank of America declined to comment on the case, which it is fighting in court. The agency could not be reached for comment.

Notional exposure
Royal Bank of Scotland has a $30 billion notional exposure and faces a multibillion-dollar fine unless it can win. Credit Suisse, Goldman Sachs and Barclays are facing smaller claims.

The settlement between the agency and JPMorgan is expected to be made public this week, the latest marker for banks that have declined to settle. UBS, Citigroup and General Electric have settled.

Some people in talks between the industry and government agencies believe the biggest banks will end up with large sweeping settlements similar to JPMorgan.– (Copyright The Financial Times Limited 2013)