BofA (BAC) To Defend $542 Million FDIC Lawsuit

According to a Bloomberg report, Bank of America Corporation (NYSE:BAC) will have to defend itself against the lawsuit filed by the Federal Deposit Insurance, accusing the bank of underpaying insurance premiums. The FDIC claims that BofA owes $542 million for deposit insurance.

Yesterday, in a court ruling, BofA made a request for the dismissal of the lawsuit, which was probably denied by the judge.

While details of the ruling have been sealed, District Judge Emmet Sullivan informed that the final decision will be made public after deciding which parts of the ruling need to be edited, by reviewing both the proposals by the bank and the regulator.

In January 2017, a lawsuit was filed by the FDIC against BofA, claiming that the bank ignored FDIC’s instructions on how to account for its exposure to counterparties.

In order to protect customers and guarantee them access to their deposits in times of a bank failure, the FDIC created an insurance fund, through which it insures bank deposits of up to $250,000. The fund is financed through risk-based insurance premiums paid by the covered banks.

These firms have to report how much money is owed by their counterparties and according to the system, the more concentrated a bank's exposure to its counterparty, the higher its degree of risk.

In 2011, the FDIC changed its rules, according to which banks were required to report counterparty exposure and payments owed by their parent companies as a whole, rather than individual units.

However, per the lawsuit, BofA failed to abide by the rules and miscalculated its exposure to its largest counterparty that has not yet been identified in the complaint.

Since BofA did not properly add up all the exposures at the parent level, it understated the amount of insurance protection that it owed to the 20 biggest counterparties for almost 2 years. The period in focus is from the second quarter of 2013 till the fourth quarter of 2014.

However, BofA claims that it did comply with the FDIC rules at that time and it regularly updated the regulator on its calculations.

According to the bank, the matter could have been resolved through discussions rather than litigation.

Though BofA has resolved quite a many litigation issues, it still faces investigations from several federal agencies and a few foreign governments for its business conducts in the pre-crisis period. Hence, legal expenses might increase its overall costs, hurting the bottom-line growth.

Shares of the company have gained 26.4% in the past year, outperforming the 12.6% rally of the industry.



Currently, BofA carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same space are BankUnited, Inc. (NYSE:BKU) , Fifth Third Bancorp (NASDAQ:FITB) and M&T Bank Corp. (NYSE:MTB) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited witnessed an upward earnings estimate revision of 1.3% for the current year over the past 60 days. Its share price has increased nearly 8.8% in the past year.

Fifth Third Bancorp witnessed an upward earnings estimate revision of 1.8% for the current year over the past 60 days. Its share price has increased 25.1% in the past year.

M&T Bank’s Zacks Consensus Estimate for the current year has been revised 1.2% upward in the last 60 days. Its shares have gained 16.8% in the past 12 months.

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