This lawsuit, brought by Bank of America shareholders, claims that Bank of America and its executives, including its former chief executive, Kenneth D. Lewis, failed to disclose what would be a $15.31 billion loss at Merrill in the days before and after the acquisition. The plaintiffs contend that this staggering loss was hidden to ensure that Bank of America shareholders did not vote against the transaction.
Bank of America disclosed this loss after Merrill was acquired. At the same time, Bank of America also disclosed a $20 billion bailout by the government. The bank’s stock fell by more than 60 percent in a two-week period, a market value loss of more than $50 billion.
This episode also spawned a lawsuit from the Securities and Exchange Commission that Bank of America, Mr. Lewis and Joseph Price, the former chief financial officer, settled for $150 million. Judge Jed S. Rakoff of the Federal District Court in Manhattan approved the deal but complained that it didn’t sufficiently penalize the individuals involved. The amount was paid by Bank of America with no liability for Mr. Lewis or Mr. Price. Judge Rakoff called the settlement “half-baked justice at best.”
During the period from the announcement of the acquisition of Merrill Lynch on September 15, 2008the BofA atock went from $34 per share to $15/share when the BofA and Merrill shareholder approved the merge on Decmber 08 , 2008. When in January 2009 it was disclosed that Merrill had losses of $15B for the quarter and Merril’s executives had used $3.6B of the $10B in Federal TARP moneys to pay bonuses. As a result, Bank Of America stock quickly hit a low of $3/share. So BofA shareholders know now that they approved a transaction not fully informed, paying a 71% premium for Merrill. After doing this their stock lost 30 dollars/share in value between the acquisitionof Merrill and the final disclosure of Merrills huge 4Q losses. In sum shareholders would see a loss of $330B during this period. Even worse, BofA stocks current price of $8.83 has seen a staggering $500B decline from its mid year 2007 price.
So what do shareholders recover with this “4th biggest settlement of shareholders litigation in Wall Street history”? $2.43B dollars in settlement divided by 10.78B shares works out to a whopping 23 cents per share. No admission of guilt and no further legal liabilities to shareholders. Is this the defining case of Wall Street as Banksters? Is it any surprise that the Kellogg/Booth Business School national financial survy shows Trust in US National Banks has dropped to a new low at 23%. Take the 5th if you think that is low enough. As if on cue, one financial colleague says “Too Big Too Fail is an unjustified pejorative these days”. Note his compensation has done quite well in the past 5 years.