Bank of America agrees to settle $2.43bn class action lawsuit
Big News Network.com Friday 28th September, 2012
WASHINGTON - Bank of America has agreed to pay a total of $2.43 billion, subject to court approval, to settle a class action lawsuit brought 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.
Under terms of the proposed settlement, Bank of America (BofA) would pay a total of $2.43 billion and institute certain corporate governance policies, the bank said in a statement.
In the lawsuit, shareholders alleged that Bank of America and some of its officers made false or misleading statements about the financial health of both companies in 2008 when Bank of America entered into a $20 billion deal to acquire Merrill Lynch even as the banking industry and federal regulators struggled to contain fallout from the financial crisis.
The Bank of America's deal to buy Merrill Lynch was forged on the same September 2008 weekend that Lehman Brothers collapsed. The transaction came into question later after Bank of America disclosed that Merrill would post $27.6 billion in losses that year.
Bank of America denies the allegations and is entering into this settlement to eliminate the uncertainties, burden and expense of further protracted litigation.
"Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders," said Chief Executive Officer Brian Moynihan. "As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients."
The proposed settlement will be reviewed by Judge Kevin Castel in the United States District Court for the Southern District of New York, where the class action is pending.
The amount to be paid under the proposed settlement will be covered by a combination of Bank of America's existing litigation reserves and incremental litigation expense to be recorded in the third quarter of 2012.
The company estimates the total litigation expense will be approximately $1.6 billion for the three months ended September 30, 2012, which includes the incremental costs of the related settlement above previous accruals and other litigation-related items.
The settlement contemplates that Bank of America will institute and/or continue certain corporate governance enhancements until January 1, 2015, including those relating to majority voting in director elections, annual disclosure of noncompliance with stock ownership guidelines, policies for a board committee regarding future acquisitions, the independence of the board's compensation committee and its compensation consultants, and conducting an annual "say-on-pay" vote by shareholders.
The company expects to take a hit due to the "litigation expense, improvements in the company's credit spreads and the U.K. tax charge are expected to negatively impact reported third-quarter EPS by approximately $0.28," the Bank of America stated.
In addition to the litigation expense, the company expects that its third-quarter 2012 financial results will be adversely impacted by approximately $1.9 billion (pretax) in negative fair value option (FVO) adjustments and debit valuation adjustments (DVA) related to the improvement in the company's credit spreads.
The previously reported charge of approximately $800 million to income tax expense for changes in the U.K. corporate tax rate and the related effect on the deferred tax asset valuation, will have to be accounted for.
Bank of America is scheduled to report third-quarter 2012 financial results on October 17.
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