It’s one step forward, two steps back for Bank of America boss Brian Moynihan.
The nation’s second-biggest bank agreed to fork over $2.43 billion yesterday to settle a class action accusing it of misleading investors about Merrill Lynch’s financial condition during their hasty merger at the height of the financial crisis.
The settlement, stemming from a 3-year-old suit, brings BofA’s litigation tab to more than $30 billion and erases much of the progress the bank has made in recent months.
Analysts say Moynihan could be in cleanup mode for two or three more years as he attempts to reverse a host of mergers strung together by his predecessor and settle pricey litigation.
BofA said the settlement with pension funds and other large investors would result in a $1.6 billion charge when it reports third-quarter results on Oct. 17. That, along with $1.4 billion in charges unrelated to the case, will cut profit by 28 cents a share, which means the bank is likely to spill red ink.
Shares fell 1.56 percent to close at $8.83 after BofA announced the settlement.
“Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” Moynihan said in a statement.
The suit accused BofA officials of withholding crucial information about Merrill’s looming losses, including some $27.6 billion in toxic mortgages.
“There was general reference to losses, but never was the magnitude of those losses disclosed,” Ohio Attorney General Mike DeWine said at a conference to announce the settlement. “This would be akin to telling someone to watch out for a pothole when they were about to fall into the Grand Canyon,” he said.
The deal, engineered by then-BofA CEO Ken Lewis, became another drag on BofA, which just a year before had embarked on an ill-fated investment in subprime mortgage giant Countrywide Financial. BofA ended up accepting a $20 billion lifeline from Uncle Sam to stay afloat.
Although BofA denied the allegations, it agreed to pony up big bucks as it tries to put the mistakes of the past behind it.
“As we work to put these longstanding issues behind us, our primary focus is on the future and serving our customers and clients,” Moynihan said.
Manhattan federal judge Kevin Castel set a Nov. 16 hearing date on preliminary approval of the shareholder settlement.
BofA still has an $8.5 billion settlement that’s in dispute and will not be heard by a federal judge until May 2013 at the earliest.