Bank of America (BofA), struggling to recover from the 2008 financial crisis, said on Friday it has agreed to pay US$2.43 billion to settle a class-action lawsuit tied to its Merrill Lynch takeover.
The bank said the payment would be to settle the lawsuit that was filed in 2009 “on behalf of investors who purchased or held Bank of America securities at the time the company announced plans to acquire Merrill Lynch.”
The nation’s second-biggest bank by assets was accused of hiding huge losses at Merrill Lynch in late 2008 to avoid potential shareholder disapproval of its takeover bid.
The bank denied the investors’ claims that it had misled them about the financial health of Bank of America and Merrill Lynch, saying it was opting for a settlement “to eliminate the uncertainties, burden and expense of further protracted litigation.”
The settlement agreement also provides for some governance improvements, including conducting an annual “say-on-pay” vote by shareholders.
The settlement depends on court approval.
Bank of America chief executive Brian Moynihan said the settlement was in the best interests of the bank’s shareholders.
The bank plans to pay for it in part from its litigation reserves and will take a one-time charge of US$1.6 billion in the third quarter.
That adds to a third-quarter US$1.9 billion charge for the bank’s market value adjustment and an US$800 charge related to a British tax.
In total, the bank will have US$4.3 billion in special charges in the July-September period, or US$0.28 per share.
Analysts revised lower their third-quarter forecasts for the Charlotte, North Carolina-based bank to an average loss of US$0.14 per share.
“The settlement is higher than expected,” said Dick Bove, a banking analyst at Rochdale Securities.
“That’s obviously not good but I’m not sure anyone cares” because the charges do not reflect the bank’s operating performance, he said.
Eric Oja, an analyst at ratings firm Standard & Poor’s, was less optimistic.
“It’s just one of many, many things facing Bank of America,” he said, noting it faces huge costs in buying back mortgage loans or mortgage-backed securities.