Bank of America to pay $2.43 bn to settle investor lawsuit over Merrill Lynch

Bank of America (BofA), the second-largest bank in the US, today agreed to pay $2.43 billion to investors who suffered losses due to its 2008 acquisition of Merrill Lynch & Co.

Charlotte, North Carolina-based BofA had in September 2008 acquired Merrill Lynch in an all-stock transaction worth about $50 billion. (See: Bank of America buys Merrill Lynch)

Merrill Lynch, amongst the largest and widely recognised brokerage houses, had been combating the credit crises with billions of dollars tied up in assets linked with mortgages that plummeted in value, and had reported four straight quarterly losses.

Investors had filed a class-action lawsuit alleging that that BofA made false or misleading statements about the financial health of BofA and Merrill Lynch and also hid a major loss at Merrill Lynch, which could influenced the shareholders' vote on the deal.

BofA denied the allegations but said that it is entering into this settlement to eliminate the uncertainties, burden and expense of further protracted litigation.

The proposed settlement is subject to review by Judge Kevin Castel in the US District Court for the Southern District of New York, where the class action is pending.

Under terms of the proposed settlement, BofA would institute certain corporate governance policies enhancements until January 2015, including those relating to majority voting in director elections, annual disclosure of non-compliance with stock ownership guidelines, policies for a board committee regarding future acquisitions, among others.

The bank said that it will pay for the settlement with existing litigation reserves and about $1.6 billion in litigation expense that will be recorded in its third quarter.