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Bank of America's (BAC) $16.65 billion government settlement for selling toxic mortgage securities marks a new U.S. record, but the bank can cushion much of the financial blow with tax deductions, according to financial and consumer watchdogs.

An estimated $10 billion to $11.63 billion of Thursday's agreement with federal and state authorities could be claimed as deductions by the nation's second-largest bank — producing roughly $4 billion in tax benefits — the watchdogs said.

Government attorneys could have insisted the deal rule out tax deductions, as they did with Swiss banking giant Credit Suisse's $2.6 billion settlement in May for helping wealthy Americans evade taxes.

Instead, a provision near the end of the 27-page pact states there was no agreement "concerning the characterization of the settlement amount for the purposes of the Internal Revenue laws."

"They're not only not spelling it out, they're specifically saying there's nothing to stop the bank from claiming deductions with the IRS," said Phineas Baxandall, senior analyst for tax and budget policy at the U.S. Public Interest Research Group, a non-profit consumer organization. "We think this is something clearly where the bank is paying for past misdeeds, and shouldn't be using the payment as a tax deduction."

Dennis Kelleher, president and CEO of financial watchdog Better Markets, similarly argued that the tax issue undercuts the settlement's true impact. "Allowing banks to use shareholders' money that is tax deductible while concealing illegal conduct and individual involvement (by bank officials) is not punishing or deterring crime," he said.

The statements contrasted with Attorney General Eric Holder's description of the deal as a "historic resolution" of allegations that Bank of America in the run-up to the national financial crisis sold billions of dollars of financial products "backed by toxic loans whose quality, and level of risk, they knowingly misrepresented to investors and the U.S. government."

The bulk of the settlement could be deemed tax-deductible, said Jerry Dubrowski, a spokesman for the Charlotte, N.C.-based bank. But only the $4.63 billion payment for compensatory remediation could be characterized as deductible in the bank's yet to be issued third-quarter financial results, he said.

Other payments under the agreement could involve mortgage write-offs the bank claimed as losses or deductions in the past, said Dubrowski.

The bank cautioned, however, that the settlement is expected to reduce third-quarter pre-tax earnings by $5.3 billion and negatively affect earnings per share by approximately 43 cents per share after taxes. The deal significantly boosts the more than $60 billion that Bank of America previously spent to resolve legal issues stemming from the financial crisis.

That tops all other U.S. banks.

Nonetheless, investors appeared to react optimistically to the sweeping resolution of investigations that had hovered ominously for months. Bank of America shares rose more than 4% in Thursday trading, closing at $16.16.

Other parts of the agreement — particularly $7 billion in consumer relief via mortgage modifications and neighborhood stabilization efforts — drew applause from some housing experts. The face value of that provision surpassed the $4 billion JPMorgan Chase agreed to earmark for consumer relief in its $13 billion November 2013 settlement of similar allegations.

The Bank of America agreement targets half of all mortgage modifications at hardest hit communities, said Andrew Jakabovics, a former federal housing official who now works for Enterprise Community Partners, a non-profit organization focused on affordable housing issues. The focus on consumer relief is positive, he said.

Still, Kelleher characterized the overall agreement as a "disservice to the American people."

He said the settlement neither disclosed how much investors lost through misconduct by Bank of America and the Countrywide Financial and Merrill Lynch units the bank acquired during the financial crisis, nor showed how much the bank gained in profits.

There's no provision for judicial oversight or input on the agreement, he said. And no present or former bank officials were identified with specific wrongdoing. "Many of the people involved probably got big bonuses. Some of them may still work at the bank," said Kelleher.

But there are potential signals that one former official could face new charges for suspected wrongdoing related to the financial crisis.

Angelo Mozilo, co-founder of Countrywide Financial and its former CEO, could be charged in a civil lawsuit under consideration by federal prosecutors in California, The New York Times, Bloomberg News and other media organizations reported this week.

Prosecutors declined to comment. An attorney for Mozilo told the news organizations there was no basis for charges against the former Countrywide Financial executive. Mozilo in 2010 agreed to pay $67.5 million in penalties to settle Securities and Exchange Commission accusations that he misled Countrywide investors.

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