BofA pays $2.4 billion to settle claims over Merrill
By Martha Graybow and Rick Rothacker
(Reuters) - Bank of America Corp agreed on Friday to pay $2.43 billion to settle claims it hid crucial information from shareholders when it bought investment bank Merrill Lynch & Co at the height of the financial crisis.
The settlement, among the biggest of its kind to stem from the 2008 meltdown, underscores how Bank of America is still suffering from decisions it made during the crisis, even as competitors are moving on.
The second largest U.S. bank likely lost money in the third quarter in large part because of the agreement, while other major banks, including JPMorgan Chase & Co and Wells Fargo & Co are expected to earn billions of dollars each.
As Lehman Brothers failed in September 2008, Bank of America agreed to buy Merrill Lynch. But in the weeks after that agreement, the bank tried unsuccessfully to scrap the deal. Merrill Lynch generated more than $15 billion of losses and its executives agreed to award employees up to $5.8 billion of bonuses.
Bank of America's shareholders voted to approve the deal in December 2008. After the merger closed, Bank of America shares fell sharply, and investors sued, saying Merrill's losses and bonuses should have been disclosed before the vote.
Bank of America denied the lawsuit's allegations, but CEO Brian Moynihan said the bank agreed to settle to remove uncertainty and put the case behind it.
The Merrill Lynch deal, as well as the bank's 2008 purchase of subprime lender Countrywide Financial, have ended up costing Bank of America billions, with the bank's mortgage business alone losing more than $35 billion since the Countrywide deal.
But the Merrill Lynch acquisition has also given much needed revenue to Bank of America. While the bank does not break out its results from Merrill Lynch, its wealth management and investment banking units, which owe much of their business to Merrill, generated nearly $160 billion of revenue from 2009 through June, or 43 percent of the bank's overall revenue. Continued...