Since the financial crisis of 2008, shares of Bank of America (NYSE: BAC) have struggled to regain footing. The firm has been embroiled in literally thousands of lawsuits, while also facing increased scrutiny from regulators. Much of this attention can be linked to the acquisitions the firm made in the time leading up to the financial crash, first with the purchase of Countrywide, the nation’s largest sub prime mortgage lender, and then with Merrill Lynch, a firm which was falling, fast. The Countrywide acquisition ultimately led to massive write downs for toxic mortgages, tarnishing the Charlotte based bank’s image along the way. The details surrounding Merrill Lynch are a bit more involved – the Merrill Lynch brand remains a crown jewel of the Bank of America empire, but a group of investors alleged that the bank misled them on the value of the business, and how it would ultimately transform the bank. Now, we are reaching closure on that issue too.
Bank of America says it will pay $2.43 billion to settle a class-action lawsuit related to its acquisition of Merrill Lynch. The lawsuit from 2009 was on behalf of investors that bought or held Bank of America stock when the company announced its plans to buy Merrill Lynch. Among the plaintiffs allegations was that Bank of America and some of its officers made false or misleading statements about both companies’ financial health. Bank of America denies the allegations and says it agreed to the settlement to get rid of the uncertainties, burden and costs related to the lawsuit. It has also agreed to adopt create several corporate governance policies.
Chief Executive Brian Moynihan has been struggling to right the ship he inherited from former CEO Ken Lewis, who assembled many of the deals that put the bank in it’s current place. Choosing to settle and trying to move on appears to be the key strategy the firm has adopted, as evidenced by the billions of legal settlements and fees the firm has incurred over the past four years. In one sense, it’s remarkable the firm has even been able to stay in business amidst the changing tides against them. The future of the Bank of America franchise will likely look very different from the past, but if they can finally get these issues behind them Moynihan and his team may finally have a chance to restore some semblance of investor confidence, and get to keep their jobs.
