BofA Settles Suits by Shareholders
In a huge settlement influenced by Enron Corp.’s meltdown, Bank of America Corp. said Friday that it would pay $490 million to put to rest claims that it misled shareholders before its 1998 merger with NationsBank Corp.
The Charlotte, N.C., company, the nation’s third-largest bank, said it had set aside reserves for the settlement so future results would not be affected. It admitted no wrongdoing.
Within weeks of the takeover of San Francisco’s BankAmerica Corp. by Charlotte’s NationsBank, the new institution announced losses of $372 million on what it described as a $1.4-billion unsecured loan made in 1997 to D.E. Shaw & Co., a New York hedge fund.
The suits, filed on behalf of shareholders whose stock holdings plunged after the disclosure, contended executives played down the banks’ exposure to losses from the volatile fund in order to keep the merger on track. They also claimed that NationsBank failed to investigate the deal sufficiently and that BankAmerica failed to disclose the deal was an acquisition, not a merger of equals.
The losses from Shaw contributed to the departure of David Coulter, chairman of the old BankAmerica, who some had considered to be a possible successor to Hugh McColl, then-chairman of the old NationsBank.
“While we believed our actions in 1998 were totally appropriate, we also felt it was best to get this litigation behind us,” Bank of America’s chief executive, Ken Lewis, said in a statement Friday. He cited the “inordinate amount of management’s time” spent dealing with class-action lawsuits filed by shareholders of both banks.
Robert Stickler, a Bank of America spokesman, also cited another “driving factor” in the decision to settle: the fallout from Enron.
As the bank looked toward the April date for trial, Stickler said, “the atmosphere ... was not conducive to corporations.”
The $490 million to be paid by Bank of America ranks in the top 10 of amounts to settle such shareholder class-action suits, said John C. Coffee, a Columbia University professor of securities law.
Coffee said the fiasco involving Enron, which hid large debts and losses in partnerships while executives earned millions of dollars on stock options, had “at least marginally changed the balance of advantage in securities litigation.”
Because of Enron, juries are more inclined to favor plaintiffs in such cases, “particularly in a case involving financial or accounting irregularities,” Coffee said.
Bank of America last year settled Securities and Exchange Commission charges that it improperly accounted for its relationship with the hedge fund and failed to adequately inform investors about the risks of the deal. The SEC said the bank had made an equity investment in the fund that it treated as a loan.
The bank, without admitting or denying guilt, consented to an SEC cease and desist order but was not fined.
Under the terms of the settlement, $333.2 million will go to former NationsBank shareholders and $156.8 million to former BankAmerica shareholders.
The bank’s shares rose $1.65 to close at $60.60 on Friday on the New York Stock Exchange.
