By Bradley Keoun and Zachary Tracer
NEW YORK - Bank of America Corp. agreed to a $2.43 billion settlement with investors who suffered losses during its acquisition of Merrill Lynch & Co., resolving one of the biggest legal battles to stem from the takeover.
The bank will incur a $1.6 billion litigation expense in the third quarter, the Charlotte, N.C.-based company said today in a statement. The firm may post a loss for the period after estimating that legal costs, valuation adjustments and tax charges will reduce earnings per share by about 28 cents.
Bank of America has faced regulatory probes, investor lawsuits and criticism from lawmakers over claims it didn’t warn shareholders about spiraling losses at Merrill before they voted to buy the brokerage in January 2009 for $18.5 billion. Under today’s settlement, Bank of America promised to overhaul corporate-governance policies.
“Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” CEO Brian T. Moynihan, 52, said in the statement. “As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients.”
Bank of America, the second-largest U.S. lender, slipped 1 percent to $8.88 at 1:54 p.m. in New York. The shares advanced 61 percent this year through yesterday, the best performance in the Dow Jones Industrial Average. In addition to litigation costs, earnings for the quarter will be reduced by $1.9 billion in pretax valuation adjustments related to credit spreads and a previously disclosed $800 million expense tied to U.K. taxes, the firm said.
The payment announced today is the largest yet by a U.S. bank for a shareholder class-action lawsuit stemming from 2008’s global financial crisis.
“This settlement is far larger than we expected given the weak merits of such suits and historical precedence,” David Trone, a JMP Securities LLC analyst, wrote in a note to clients. “Bank of America is attempting to rebuild its capital base, and these hits will essentially erase the past six months of progress.”
The valuation adjustment and tax charge won’t affect regulatory capital, said Jerry Dubrowski, a bank spokesman.