The price being paid by Bank of America for its missteps during the financial crisis rose sharply on Friday as the bank announced a $2.43 billion deal to settle accusations that it misled investors about the acquisition of Merrill Lynch.
It is the largest securities class-action lawsuit settlement yet to arise from the financial crisis.
Shareholders, led by pension funds, including those in Ohio and the Netherlands, had accused the bank of providing false and misleading statements about the health of the Wall Street firm, which, unknown to the public, was racking up huge losses in late 2008 amid turmoil in the markets.
Bank of America denied the allegations, but said on Friday that it had agreed to settle in order to put the case behind it. “Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” Brian T. Moynihan, the bank’s chief executive, said in a statement.
The settlement, however, may undermine a battle between the New York attorney general and the bank. In 2010, Andrew M. Cuomo, New York’s attorney general at the time, sued Kenneth D. Lewis, the bank’s former chief executive, and Bank of America, contending that the bank and its executives hid from shareholders billions of dollars in losses at Merrill, later causing Bank of America to need a bailout from Washington.
The case, which now falls to Eric T. Schneiderman, could lose much of its steam. Under a decision by New York’s highest court, the attorney general can recover losses on behalf of shareholders. Once the shareholders settle, though, Mr. Schneiderman’s office can expect to obtain little more than a penalty, according to people briefed on the matter. The attorney general’s office declined to comment.
The huge size of the settlement underscores how two deals in 2008 — the Merrill acquisition and the purchase of the mortgage lender Countrywide Financial earlier that year — have weighed on the bank, one of the country’s largest, keeping it from making a full recovery.
The Countrywide acquisition, made as the housing market was collapsing, has now cost Bank of America more than $40 billion in losses on real estate, legal costs and settlements, according to several people close to the bank. That deal alone would have been enough to hobble Bank of America, but coupled with the questionable acquisition of Merrill Lynch, it nearly crippled the institution.
Since 2009, Bank of America has closed bank branches, sold billions of dollars in assets and cut tens of thousands of jobs.
When the deal to buy Merrill Lynch for $50 billion was announced in September 2008, Lehman Brothers was preparing to file for bankruptcy and the American International Group was rapidly crumbling. At the time, Bank of America and Merrill crowed about creating a financial giant unrivaled “in its breadth of financial services and global reach.” Bank of America executives emphasized Merrill’s “great global franchise” and its extensive network of financial advisers. The company said the deal would bolster earnings by 2010.
But by the time the deal closed in January 2009, Merrill Lynch’s health had deteriorated precipitously. Internal calculations showed that Merrill, which was saddled with billions of dollars in souring mortgage assets, had a staggering pretax loss in excess of $10 billion for October and November 2008, and December was looking even worse.
Even as the losses continued to pile up within Merrill, executives were pushing forward to close the deal by January 2009. On Dec. 5, at separate meetings in Charlotte, N.C., and New York, shareholders of each company voted to approve the deal.
What they did not know, shareholders contended, was that just days before that meeting, bank executives worried that Merrill Lynch would have a fourth-quarter loss of at least $16 billion. There was no public disclosure of that internal forecast.
In court documents, lawyers for Mr. Lewis have said that the executive was aware of the mounting losses heading into the shareholder meetings, but that after discussions with lawyers he concluded that an interim disclosure was not necessary because the crucial regulatory filing in support of the merger did not contain projections on Merrill’s fourth-quarter results.
“The losses, though large, were not out of line with losses Merrill had experienced in prior quarters; and investors were well aware that banks were sustaining significant losses as the economy deteriorated,” according to a court filing.