When it comes to buyer’s remorse, the purchase of Merrill Lynch by Bank of America Corp (NYSE:BAC) in 2009 probably doesn’t come close to that of the Countrywide acquisition a year earlier. The Merrill buyout has spawned its share of losses, however, and the recent blessing of the lawsuit settlement terms reached last September by B of A and a group of institutional investors is, at $2.4 billion, a princely sum that will hit the bank’s bottom line like a slap — and, it’s not the only legal morass still facing the superbank.
2008: A bad year for acquisitions
Investors claimed that they were kept in the dark regarding Merrill’s sorry fiscal state of affairs at the time of the purchase, as well as the plan to award over $3.6 billion in bonuses to executives. Later testimony by former CEO Ken Lewis lent credence to this claim, and the $50 billion deal that stockholders approved wound up costing Bank of America Corp (NYSE:BAC) $9 billion in debt offerings, a fourth-quarter loss of nearly $16 billion, and triggered another $20 billion taxpayer bailout. At least the transaction only cost $18.5 billion, rather than the original $50 billion, when it closed in January 2009.
Unfortunately, this is not the only lawsuit pending against B of A pertaining to Merrill Lynch: Insurance giant Prudential Financial Inc (NYSE:PRU) has filed a claim in federal court in New Jersey claiming fraud on $2 billion worth of securities sold from 2004 to 2007 — and leveling racketeering charges against the bank, to boot.
A never-ending stream of legal hassles
Those familiar with Bank of America Corp (NYSE:BAC) are well-acquainted with its myriad legal problems, many caused by toxic mortgages produced by Countrywide — very nicely laid out here. Peers face problems in this arena, too. JPMorgan Chase & Co. (NYSE:JPM) recently celebrated a win in claims filed against it by Belgian bank Drexia over $1.6 billion in soured mortgage loans, it but still faces putback claims on mortgage-backed securities valued at more than $140 billion, as well as the $33 billion complaint filed against it by the Federal Housing Finance Agency.