Bank of America $2.43b Settlement Gets Court OK

The company still faces a variety of litigation over its mortgage operations and its underwriting of mortgage securities.

Bank of America won a federal judge’s approval on Friday for a $2.43 billion settlement with investors who said the lender hid crucial information when it bought Merrill Lynch.

The accord, among the largest investor settlements stemming from the recent global financial crisis, was approved by U.S. District Judge Kevin Castel in Manhattan. Castel called the settlement “fair, reasonable and adequate,” and said it culminated an “extraordinarily hard-fought litigation.”

Bank of America had agreed to buy Merrill in an all-stock deal initially valued at $50 billion on September 15, 2008, the same day that Lehman Brothers Holdings Inc. went bankrupt. But Merrill ended up losing $15.84 billion in that year’s fourth quarter, even as it awarded $3.62 billion of bonuses to employees. Bank of America ultimately obtained a federal bailout, since repaid, to absorb Merrill.

Shareholders, including the State Teachers Retirement System of Ohio and the Teachers Retirement System of Texas, said Merrill’s mounting losses and bonus plans should have been disclosed before investors voted on the merger in December 2008.

The accord with the second-largest U.S. bank was announced in September, and won preliminary court approval in December. “We are very proud of this result,” Max Berger, a lawyer for the plaintiffs, said at the hearing.

Bank of America denied the plaintiffs’ allegations, but its CEO, Brian Moynihan, has said the settlement would remove uncertainty for the Charlotte, North Carolina-based bank.

Daniel Kramer, a lawyer for the bank, declined to comment at the hearing. A spokeswoman, Jessica Oppenheim, did not immediately respond to requests for comment after the hearing.

Since buying mortgage lender Countrywide Financial Corp. in July 2008 and Merrill six months later, Bank of America has incurred more than $40 billion of extra costs for litigation, write downs and mortgage buybacks, analysts have said. The company still faces a variety of litigation over its mortgage operations, which have shrunk significantly in size, and over its underwriting of mortgage securities.

Bank of America is among 17 banks and lenders facing lawsuits by the U.S. Federal Housing Finance Agency over losses suffered by Fannie Mae and Freddie Mac on mortgage securities.