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Bank of America Finally Wears Its Shareholders Out

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"Bank of America denies the allegations and is entering into this settlement to eliminate the uncertainties, burden and expense of further protracted litigation."

This quote is from the statement announcing Bank of America's (NYSE: BAC  ) decision to settle a shareholder lawsuit to the tune of $2.4 billion dollars, dating back to the darkest days of the financial crisis, when the superbank acquired Merrill Lynch.

We've all heard this sort of thing before, that such-and-such an institution denies all wrongdoing but is paying out merely to put the issue behind it. Is it so hard to actually admit you did something wrong?

Yes, it is
The suit alleged that B of A withheld critical financial information from shareholders about Merrill Lynch, the brokerage firm it bought in 2008: specifically, that B of A hid Merrill losses from investors in the time leading up to the acquisition, with billions of dollars in bonuses for Merrill executives hanging in the balance.

Of course, while this settlement is good for the shareholders who brought suit, it's less so for current shareholders: Only $800 million of that $2.4 billion is covered by B of A's litigation reserves, leaving $1.6 billion to come straight off the balance sheet. This could cause the bank to post a third-quarter loss.

Where the fun never stops
The next time you hear people talk about the financial crisis in the past sense, consider this case (not the first of its kind for B of A), and many others like it:

  • Just last month, Citigroup (NYSE: C  ) settled a class action lawsuit (again, admitting no wrongdoing) to the tune of $590 million, brought by angry shareholders who contend they were misled about the bank's exposure to subprime mortgage debt in the run-up to the financial crisis.
  • In July, Wells Fargo (NYSE: WFC  ) agreed to pay $175 million to settle accusations that its mortgage brokers had discriminated against Latino and African-American borrowers during the housing boom.

The death of the financial crisis has, in fact, has been greatly exaggerated. No doubt, there's more fun to come, Fools, so stay tuned. Regarding today's latest revelation, B of A's stock is strangely down only 1.17%. Maybe stockholders are just tired of scandal, too tired to even drag themselves over to their computers to place a sell order.

For this, B of A should be grateful: It's worn its own shareholders down, and is hence suffering very little, at least in terms of share price, for its blunder. And while, in the end, it may not make any kind of material difference for shareholders to hear their bank man-up and admit error, just for once it sure would be nice.

Glutton for punishment? The Motley Fool has just published an in-depth company report on Bank of America, one of the country's most talked about banks, detailing its prospects along with three reasons to buy and three reasons to sell. Just click here to get access, and try and forget about today's news.

Fool contributor John Grgurich likes to say "glutton for punishment" whenever he can, but owns no shares of any of the companies mentioned in this column. Follow John's dispatches from the bleeding edge of capitalism on Twitter @TMFGrgurich.

The Motley Fool owns shares of Citigroup, Wells Fargo, and Bank of America. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a delightful disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2012, at 11:14 PM, dcorley wrote:

    So, Wells Fargo was smart enough to limit its losses by not writing mortgages for "risky" borrowers.

    $175 Million for "discrimination", instead of a lot more for following the Barney Frank rules.

  • Report this Comment On September 29, 2012, at 12:22 PM, Sotograndeman wrote:

    It's old news. They're doing the right thing. Let's be happy with that. You seem to have an overly simplistic view of the business (and legal) world. Things are never black and white.

  • Report this Comment On September 30, 2012, at 2:07 PM, lowmaple wrote:

    Yea admit it And get sued some more

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