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Bank of America settles mortgage probes with record penalty

Bank of America has agreed to pay a record fine to settle investigations linked to the 2008 financial crisis in the US. The US lender was accused of having misled investors on the risks of mortgage-backed securities.

The US Department of Justice announced Thursday that Bank of America (BofA) had accepted penalties amounting to a total of $16.6 billion (12.5 billion euros).

In the largest settlement in history between the United States and a single company, the US lender agreed to pay $9.65 billion in cash penalty as well as provide $7 billion in compensation for investors.

It is expected to resolve the majority of remaining liabilities BoA it inherited from its purchases of Countrywide Fianancial Corporation in July 2008 and Merill Lynch six months later.

"I want to be very clear: The size and scope of this multibillion-dollar agreement goes far beyond the cost of doing business," US Attorney General Eric Holder said in announcing the settlement.

In the run-up to the 2008 financial crisis, BofA sold large numbers of

mortgage-backed securities (MBS) and collateralized debt obligations (CDO)

to investors, concealing that these financial products were partly based on low-quality credits and pose a huge risk of default.

As interest rates on mortgages began to rise in 2007, many low-income home owners with mortgages massively defaulted on their loans, causing what's become known as the

subprime mortgage crisis

. In its wake, securities backed with those mortgages such as CDOs and MBS - widely held by financial firms worldwide - lost most of their value.

The BofA settlement is part of a US Justice Department drive to uncover the US banking sector's allegedly deceptive practices, which brought the country's finance system to the brink of collapse. In 2013, Citigroup reached a $7-billion settlement, while

JPMorgan Chase

agreed to pay $13 billion in similar cases.

uhe/sri (Reuters, AFP, dpa)

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