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Bank of America settles suit over Merrill Lynch deal

Bank of America will pay $2.4 billion to shareholders who accused it of withholding negative information about Merrill Lynch's finances.

Bank of America agreed to pay shareholders $2.43 billion today, settling allegations it misled investors during the dark days of the financial crisis. The case goes back to a chaotic weekend in September 2008. Bank of America chose to buy Merrill Lynch, just as Lehman Brothers was drowning.

“There was a lot of scurrying going around,” says Lawrence White at New York University’s Stern School of Business.

The suit accuses Bank of America of later finding the about-to-be-acquired property full of financial risk, but not telling investors. BofA settled without admitting fault. But White says the settlement payment will come from bank owners. In other words, shareholders will pay shareholders.

“The money’s coming out of one pocket and going into the other pocket,” White says. “However, not so fast, because there are lawyers in between.”

And White says lawyers tend to get a third of payouts.

Bank of America has endured a series of lawsuits since the financial crisis. Customers have sued, as well as lenders, borrowers and the federal government. By one tally, the bank has paid out $29 billion dollars in settlements since the crisis.

It’s a huge number,” says Charles Elson, corporate governance professor at the University of Delaware. “That was shareholder value that went out the door. It was a result of problematic acquisitions that had nothing to do with those who invested their capital in the company. And they ended up paying for it.”

Dick Bove, an analyst at Rochdale Securities, is glad Bank of America saved Merrill when it did.

“Remember, Bear Stearns went under,” he says. “Lehman went under. Merrill Lynch now would have gone under. The next step in the ladder was Morgan Stanley -- that was gasping for air. And then there would have been an attack on Goldman Sachs.”

Still, he notes ends don’t justify means, as in allegedly misleading investors. The difference between the two: a $2.43 billion  settlement.

About the author

Scott Tong is a correspondent for Marketplace’s sustainability desk, with a focus on energy, environment, resources, climate, supply chain and the global economy.
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Hold on here. BOA wanted to back out of the purchase of Merrill, just before it closed. But the feds (Hank Paulson, Bernanke) didn't want the bad publicity of a failed deal, so they forced BOA to complete the deal. Who really is at fault here?

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