Bank of America Merrill Lynch settlement is finally a reality. Bank of America has agreed to pay $2.43 billion in settlement for a class action suit brought by its shareholders who allege that the bank gave false or misleading information regarding its acquisition of Merrill Lynch at the height of the financial crisis.
The deal which saw BoA buy Merrill for $20 billion, happened in the same month – September 2008 – when Lehman Brothers went under. Later BoA disclosed the Merrill Lynch has reported a $2.7 billion loss for the year, adding significantly to the troubles of BoA and forcing the bank to borrow an additional $20 billion in federal relief fund, on top of the $25 billion it had already got.
Though the BoA had since paid back the $45 billion, the investors allege that they were misled at the time that the acquisition was made. The BoA on its part has denied any wrongdoing. Yet, to contain the fallout from a lingering trial, it agreed to pay $2.43 billion to settle the case.
What is interesting that the money will come from the company, and thus belong to the shareholders anyway. Executives hardly ever pay up, unless they are convicted of criminal fraud.
The money will go out to the shareholders after the cost for paying the lawyers have been deducted, which comes to 6% of the total payout, because as the Forbes points out:
“Some of these payouts, like the latest, were negotiated by the most expensive lawyers on earth: Class-action firms, which specialize in assembling lawsuits in the wake of significant negative news and convincing judges to appoint them to represent all the shareholders who lost money as a result.”
Did the BoA do the right thing? Maybe. It gets absolution from its sins committed at the height of the financial crisis and can walk free, by the simply expedient of paying back shareholders money to back to them.
It is another matter that the entire episode has the same sort of stink to it as the Libor fixing scam, a bank does wrong and then its executives walk free. At least no one can accuse it of not being savvy.