“The smartest bankers we got”

Bank of America Settles Suit Over Merrill for $2.43 Billion

By JESSICA SILVER-GREENBERG and SUSANNE CRAIG, The New York Times

September 28, 2012, 8:49 am

The settlement, however, may undermine a battle between the New York attorney general and the bank. In 2010, Andrew M. Cuomo, New York’s attorney general at the time, sued Kenneth D. Lewis, the bank’s former chief executive, and Bank of America, contending that the bank and its executives hid from shareholders billions of dollars in losses at Merrill, later causing Bank of America to need a bailout from Washington.

The case, which now falls to Eric T. Schneiderman, could lose much of its steam. Under a decision by New York’s highest court, the attorney general can recover losses on behalf of shareholders. Once the shareholders settle, though, Mr. Schneiderman’s office can expect to obtain little more than a penalty, according to people briefed on the matter. The attorney general’s office declined to comment.

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It is unclear how much relief the shareholders – those who owned Bank of America shares or call options from September 2008 to January 2009 – will receive. A chunk of the settlement amount will go to the plaintiffs’ lawyers, who are expected to ask the court for $150 million in fees. Bank of America will use its litigation reserves and litigation expenses to cover the settlement, saying that it and other legal expenses cost it $1.6 billion.

The bank also said on Friday that it had agreed to adopt a “say on pay” shareholder vote, an independent compensation committee of the board and policies for committees focused on acquisitions, among other corporate governance changes.

Despite the legal woes, the Merrill Lynch business has helped bolster Bank of America, contributing roughly half the bank’s revenue since 2009, according to bank analysts.

The Countrywide acquisition has proved to be a bigger albatross for Bank of America. The purchase effectively saddled Bank of America with hundreds of thousands of homeowners struggling to keep up with their mortgage payments.

The bank has spent billions of dollars to defend lawsuits related to Countrywide’s mortgage business. In the second quarter of 2011, for example, the bank reported an $8.8 billion loss, mainly related to a settlement with mortgage investors.

Earlier this year, Bank of America and four other banks agreed to a $26 billion settlement related to their foreclosure practices. That deal evolved from an investigation of the mortgage servicing practices by state attorneys general that was begun in 2010 amid mounting fury over revelations that banks evicted homeowners from their residences with false or incomplete documentation.

Bank of America’s Cascade of Settlement Payoffs Continue

By: David Dayen, Firedog Lake

Saturday September 29, 2012 11:30 am

This was outright securities fraud, and I’m more than surprised that the investors plaintiffs, led by public pension funds in Ohio and Texas, accepted this. BofA clearly withheld information from their shareholders that caused a material loss; the stock is down 2/3 since the Merrill deal, even while the bank returned to profitability (though not this quarter, as we’ll see). But the investors had little leverage. The SEC should have been all over this, but they settled over the acquisition in 2009, in a settlement so bad that the judge made them rework it. In the end, the SEC got just $150 million for their settlement, and the fact that the investors got 16 times as much should truly embarrass them.

Incidentally, Ken Lewis was specifically sued in this case and would have been personally liable for withholding information, but BofA will cover his costs in the settlement, so he won’t have to pay a dime.

This is just the latest in a long line of settlements BofA has managed to negotiate over a string of fraudulent and abusive activity since 2009. In all, BofA has paid out over $29 billion, including the $11.8 billion in cash penalties and “credits” from the foreclosure fraud settlement. The other big number included in that, the $8.5 billion settlement with mortgage backed securities holders for repurchases, hasn’t been finalized yet. But it’s clear that Bank of America has become a waystation for abused parties to take out settlement money, rather than a lender allocating capital efficiently. And of course, given the inadequacy of these settlements, the real cost of Bank of America’s practices in the economy are much, much higher.

In fact, between this settlement, some tax charges and litigation expenses (none of that $29 billion includes legal fees), BofA expects to book a loss for the third quarter, years after the end of the financial crisis. While Merrill Lynch at least provided investment banking revenue, that acquisition and the Countrywide acquisition have been extremely problematic for the bank. Countrywide in particular has been the main cause for a loss in BofA’s mortgage business of $35 billion.

If it weren’t for a massive sell-off of assets and a government lifeline, there would not be a Bank of America today. And policymakers should ask themselves why they propped up a zombie bank so it could pay off its legal exposure and not much else.