Bank of America, investors, still paying for Merrill Lynch sale

On the cusp of the 2008 financial meltdown I wrote about Merrill Lynch’s $50-billion sell-off to Bank of America, America’s second-largest bank. The move, according to the New York Times, was an attempt between the two companies to avert a “deepening financial crisis.”

I didn’t know it at the time, but I was wrong. So were thousands of Bank of America investors. The financial crisis had already arrived at Merrill Lynch.

Merrill’s fourth-quarter loss in 2008 was expected to be $9 billion. According to court papers, the losses were actually closer to $15.84 billion.  The financial hit forced Bank of America to get a second, $20 billion taxpayer bailout, and fueled a 93 percent drop in B of A’s share price over the following six months.

Crying foul

Fast forward to September, 2012 when a federal court judge approved a $2.4 billion settlement Bank of America reached with disgruntled investors to resolve securities fraud litigation over the 2008 Merrill Lynch takeover.

According to Reuters, Bank of America investors claimed in court filings that Bank of America directors, including former Chief Executive Kenneth Lewis, misled shareholders about Merrill’s losses.

According to court documents, those Merrill Lynch losses peaked at $15.84 billion in the fourth quarter of 2008. It included $3.6 billion in bonuses Merrill was doling out to employees at the time.

More litigation

Additional legal settlements involving Bank of America’s representation of Merrill’s losses in 2008 are pending. There’s also a $1 billion suit filed by the Department of Justice last October alleging fraudulent loan practices.

Bank of America this week agreed to pay another $11.6 billion to settle Federal National Mortgage Association’s claims and to resolve problems over the collapse of distressed mortgages, most of them made by B of A’s acquisition of Countrywide Financial.

Today, Bank of America stock is selling ($11.63 a share) at a 65-percent discount over what it was worth before tanking in late 2008

I was leery enough in September of 2008 to express my doubts about the wisdom of the U.S. taxpayer funded bailout support for the so-called “too big to fail” banks.  I was also leery of the B of A purchase of Merrill Lynch. I wrote:

Under the latest deal the New York Times reported that Merrill’s so-called “thundering herd” of 17,000 brokers will be combined with Bank of America’s smaller group of wealth advisers and called Merrill Lynch Wealth Management.  After this latest announcement, Merrill Lynch’s new Wealth Management title could be the biggest stretch of the decade.

More than five years later, the biggest stretch of the decade continues.

Two cases against Bank of America

Bank of America Securities, Derivative and Employee Retirement Income Securities Act litigation, 09-02058, U.S. District Court, Southern District of New York (Manhattan).

Nancy Rothbaum v. Kenneth D. Lewis, CA4307, Delaware Chancery Court (Wilmington).