Bank of America Corporation (BAC) received approval from the U.S. District Court of the Southern District of Manhattan to settle a $2.43 billion class-action lawsuit filed by irate shareholders over the acquisition of Merrill Lynch. The bank had agreed to settle the accusations in Sep 2012.
Shareholders filed the lawsuit as they were miffed with BofA for not disclosing its financial status or that of Merrill Lynch during the takeover declaration in Sep 2008. The shareholders also claimed that the consideration for the acquisition of Merrill was in excess. The deal was struck for $20 billion in stock during the financial crisis.
The shareholders alleged that the company and the senior executives deliberately misrepresented the facts by providing materially misleading statements about the benefits from the deal. This led majority of the shareholders to approve the acquisition in Dec 2008.
Following the signing of the agreement, BofA revealed that it was about to incur $27.6 billion in losses pertaining to Merrill Lynch that year. Eventually, the company required a $20 billion bailout from the federal government to help offset those losses. It had previously received $25 billion in bailout funds.
Without accepting or denying any charges, BofA stated its decision to settle the lawsuit to remove ambiguity and expenses related to the litigation.
The Merrill Lynch takeover turned out to be a sour investment for BofA. After nearly 5 years of the purchase, the bank is still grappling with lawsuits. In 2009, BofA shelled out $150 million to the Securities and Exchange Commission to resolve similar charges.
Alongside, BofA has a pending civil fraud lawsuit that alleges it and former CEO Kenneth Lewis of deliberately choosing not to disclose the losses and bonuses associated with Merrill, before the acquisition was concluded. Attorney General Eric Schneiderman is now pursuing the lawsuit that was filed in Feb 2010 by the then AG, Andrew Cuomo.
Merrill Lynch is not the only trouble BofA is currently combating. The company has been deluged by a series of lawsuits stemming from the sale of the mortgage securities prior to the last financial crisis. In addition, the company is countering a plethora of other lawsuits alleging legal malfeasance. Last month, Freddie Mac dragged BofA and a dozen other banks including biggies like JPMorgan Chase & Co. (JPM), UBS AG (UBS) and Credit Suisse Group AG (CS) to court accusing them of manipulating the London Interbank Offered Rate (:LIBOR).
The legal settlements have emerged as a liability as they erode a considerable portion of the profits. However, BofA’s strong fundamentals continue to act as a positive catalyst.
Currently, BofA carries a Zacks Rank #3 (Hold).
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