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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.
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