Updated September 28, 2012, 10:59 a.m. ET

BofA to Pay $2.43 Billion in Merrill Settlement

By CHRISTIAN BERTHELSEN

Bank of America Corp. BAC -1.06%agreed to pay $2.43 billion to settle claims it misled investors in its 2009 acquisition of Merrill Lynch & Co., in the largest settlement of a financial crisis-related shareholder class-action suit.

The agreement represents the latest effort by Brian Moynihan, chief executive of the nation's second-largest bank by assets, to deal with the consequences of a pair of acquisitions the bank hastily made during the financial crisis: the 2008 acquisition of mortgage lender Countrywide Financial Corp. for $2.5 billion and the $19 billion Merrill Lynch purchase.
Bloomberg News

The pact shows that four years after the financial crisis, Bank of America continues to pay a hefty price for those deals, engineered by former Chief Executive Kenneth D. Lewis, who left the bank in 2009. Bank of America last year agreed to pay $8.5 billion to settle claims brought by investors who took a beating on mortgage bonds issued by Countrywide before the housing market collapsed.

Plaintiffs claimed Bank of America and certain of its officers made false or misleading statements about the financial health of Bank of America and Merrill Lynch. Bank of America said it denies the allegations and is settling "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 Mr. 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."
Share of Bank of America fell in morning trading on the New York Stock Exchange to $8.88. The company's shares traded as high as $39 in the month before it announced the Merrill acquisition in September 2008.
The Charlotte, N.C., company said it would make certain corporate governance changes as well, principally tied to compensation and board review of acquisitions.
The company, which has set aside tens of billions of dollars to pay legal costs tied to acquisitions and souring mortgages since the crisis, said it would take an additional litigation cost of $1.6 billion in the third quarter.
In announcing the deal, Bank of America also said accounting charges stemming from the settlement and other litigation, combined with charges for U.K. tax liability and adjustments to the valuation of its debt, would amount to 28 cents per share in the third quarter. The consensus estimate of analysts was for a profit of 13 cents per share.
After the news, JMP Securities JMP -0.36%analyst David Trone adjusted his third quarter estimate to a loss of 17 cents per share.
In addition to the litigation expense, Bank of America said it expects its third-quarter results to be negatively impacted by $1.9 billion before taxes 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 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.

BofA to Pay $2.43 Billion in Merrill Settlement - WSJ.com