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Do Settlements Make Bank Stocks More Attractive?

David Bartosiak


Bank of America just settled with the Department of Justice, the SEC and several states for  $16.65 billion stemming from allegations the bank misrepresented the credit quality of their  Mortgage-Backed Securities (MBS.V) and mislead investors. 

 

The settlement includes a cash payment of $9.65 billion along with $7 billion in consumer aid in the  way of modifying underwater mortgages. 

 

For those keeping score at home, that brings Bank of America's total to $74.58 billion. That dwarfs  big payments and settlements from J.P. Morgan Chase ($27 bn), Citibank ($12 bn), and Wells  Fargo ($10 bn). 

 

This last settlement is likely one of the last remaining big money settlements coming out of major  U.S. banks. 

 

Assuming the worst is over, do the settlements make you feel better or worse as an investor in the  banking sector?

 

On one hand, you have to be happy these are over for the most part. But the other side of that sword is,  you're invested in companies who have basically admitted to fraud. It's hard to get that warm, tingly  feeling when you're investing in a company that's done business like that in the past. Who is to say  that a scenario like this doesn't pop up in the future?

 

These settlements make me feel better about investing in these companies. This is going to happen  from time to time, although maybe not this egregiously. Legislation will always trail the financial  industry. These types of scenarios are really just the price of doing business. 

 

What do you think?


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