Bank of America Corporation
) 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
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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
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
JPMorgan Chase & Co.
Credit Suisse Group AG
) 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).