Bank of America to Pay $2.43 Billion in Merrill Settlement
Category: Global Market
September 28, 2012 / Saabira Chaudhuri / WSJ
Bank of America Corp. (BAC) said it will pay $2.43 billion to settle a 2009 class action lawsuit brought in 2009 on behalf of investors who held Bank of America securities at the time the company announced plans to acquire Merrill Lynch.
The bank also revealed it will take $3.5 billion in charges in the third quarter related to legal expenses, certain adjustments and income tax expenses.
Bank of America said in a statement it "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 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 amount to be paid under the proposed settlement will be covered by a combination of Bank of America's existing litigation reserves and litigation expense to be recorded in the third quarter. The company estimates total litigation expense will be about $1.6 billion for the third quarter.
In addition to the litigation expense, Bank of America said it expects its third-quarter results to be negatively impacted by $1.9 billion, pretax, in negative fair value option adjustments and debit valuation adjustments related to an improvement in the company's credit spreads, and a previously reported charge of about $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.
Litigation expense, improvements in the company's credit spreads and the U.K. tax charge are expected to hurt reported third-quarter per-share earnings by about 28 cents.
Under terms of the proposed settlement, Bank of America will also institute or continue certain corporate governance policies until Jan. 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.
Shares edged down 0.7% to $8.91 in recent premarket trading. The stock is up 61% so far this year.