Investors in Delaware are unhappy with the $20 million
settlement price offered by
Bank of America Corp.
(
BAC
) to reconcile the lawsuits filed against it by its shareholders in
relation with the acquisition of Merrill Lynch & Co. As
reported by
Bloomberg
, the settlement price represents merely 4% of the insurance
coverage provided to the Board of Directors.
The lawyers representing BofA's shareholders in Delaware alleged
that the settlement proposed by the bank is highly inadequate. It
signifies just a fraction of the $5 billion claim that the
Delware's derivative plaintiffs have been looking for.
A Federal Judge in New York is contemplating the settlement
suggested by BofA in connection with all the similar lawsuits filed
by the investors, but the Delaware investors are against this
meager settlement and want to keep their case open. They believe
that the bank is trying to settle the case in order to evade the
hearing in Delaware court in October.
The lawsuit, in lieu of which the settlement was offered,
claimed that the consideration paid by BofA for the acquisition of
Merrill was in excess of the required amount. In addition, the
lawsuit accused BofA along with some of its senior managers and
directors of deliberately concealing the amount of Merrill's losses
and bonus payouts in 2008.
Moreover, BofA was forced in January 2009 to take a second
bailout from the Troubled Asset Relief Program (TARP) due to
Merrill losses. This led to a 93% drop in the bank's stock price.
The acquisition of Merrill turned sour, which compelled the
shareholders to take legal action.
Earlier, in 2009, the Securities and Exchange Commission (SEC)
had also charged a fine of $150 million on BofA based on similar
issues.
Our Take
The increasing number of lawsuits on BofA can result in tainted
goodwill and elevated litigation costs, which will have a negative
effect on its profitability.
Currently, the shares of BofA have a Zacks #3 Rank, which
translates into a short-term Hold rating. Additionally, we maintain
our long-term Neutral recommendation on the stock.
Similarly, one of the peers of BofA,
Wells Fargo & Co.
(
WFC
) also retains a Zacks #3 Rank.
BANK OF AMER CP (
BAC
): Free Stock Analysis Report
WELLS FARGO-NEW (
WFC
): Free Stock Analysis Report
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