B of A Shareholders Sue Over Losses : 2 Actions Allege Lax Loan Standards, Cover-Up at Bank
Huge loan losses at BankAmerica Corp. have triggered two lawsuits filed by shareholders who claim the bank lacked proper lending standards and covered up the extent of potential losses in its $82-billion loan portfolio.
One suit, a shareholder action against the bank’s officers and directors, was brought by International Apparel Associates, a New York consulting firm holding several hundred BankAmerica shares. The suit, filed last Friday in Delaware Chancery Court, seeks “in excess of $100 million” from the bank’s insurer to recover part of the bank’s more than $1 billion in loan losses since early last year.
The second suit was filed by Barbara Zarowitz, a New York City housewife who owns 100 BankAmerica common shares, as a class action on behalf of people who bought or sold BankAmerica securities between February, 1984, and July 17, 1985. The suit, filed Monday in U.S. District Court in Los Angeles, seeks repayment for investors’ losses during that 18-month period.
BankAmerica, parent of San Francisco-based Bank of America, the nation’s largest bank, announced last week that it lost $338 million in this year’s second quarter. The loss was the second-largest quarterly deficit in U.S. banking history.
Both actions are being handled by the Haverford, Pa., law firm of Greenfield & Chimicles, which specializes in shareholder litigation. The firm won $3.5 million for shareholders from Crocker National Bank in a suit alleging similar mismanagement filed after the San Francisco bank reported substantial losses in 1983. A B of A spokesman said the bank had not had time to study the lawsuits and would have no comment on them.
Lack of Controls Charged
Richard D. Greenfield, the attorney representing shareholders in the two actions, said the bank’s problems were the result of a “widespread” lack of controls.
“The bank didn’t have the faintest idea how bad things were, and when they did know, they kept it hidden,” he said. “In essence, we’re saying that, by virtue of not telling the truth about the bank’s financial condition and the condition of the loan portfolio, the price of BankAmerica securities was inflated. If the truth had been known, the stocks would have been selling at lower prices.”
The Zarowitz action demands that the bank repay investors for the diminished value of their BankAmerica shares. BankAmerica common sold for an average of $21 a share in February, 1984. It closed at $17.625 on July 17, the day that the massive second-quarter loss was reported.
The International Apparel suit seeks payment from the bank’s insurance firm, Employers Insurance of Wausau, under the bank’s directors and officers liability policy. The coverage, which protects the firm against negligence claims by shareholders, was canceled in April after the bank sued six of its own officers, claiming they bore responsibility for $95 million in losses from an alleged mortgage-securities fraud.
A third shareholder suit against BankAmerica was filed in April by a Cincinnati shareholder who charged that the bank was guilty of negligence and mismanagement in the mortgage-securities case.
A bank spokesman said he knew of no other outstanding shareholder actions.
