By James Sterngold, Dan Fitzpatrick and Nick Timiraos
Bank of America Corp. and former Chief Executive Kenneth Lewis
took big steps to put the financial crisis behind them by paying
state and federal agencies to settle lawsuits over the acquisitions
of Countrywide Financial Corp. and Merrill Lynch & Co.
The Charlotte, N.C., lender said Wednesday that it would pay
$9.5 billion to settle mortgage claims with Fannie Mae, Freddie Mac
and their federal regulator.
Bank of America also agreed to pay the state of New York $15
million to end a civil lawsuit by New York state Attorney General
Eric Schneiderman alleging the bank duped shareholders by failing
to disclose mounting losses at Merrill before buying the securities
firm in a rushed deal struck in 2008 near the height of the
financial crisis. The bank neither admitted nor denied wrongdoing
in both settlements.
Mr. Lewis agreed to pay $10 million and accept a three-year ban
from work at any public company as part of the New York settlement.
Bank of America will cover Mr. Lewis's penalty, according to people
familiar with the deal. Mr. Lewis neither admitted nor denied
wrongdoing.
Bruce Yannett, Mr. Lewis's lawyer, said the former CEO "is proud
of the role he played in helping the U.S. banking system survive"
but that he "is pleased to put this matter behind him and to move
on with his life."
The settlements bring to more than $60 billion Bank of America's
legal tab for its acquisitions of Countrywide and Merrill.
The agreements represent the latest attempt by the
second-largest U.S. bank by assets to move past its
financial-crisis-era legal problems. Bank of America still faces
investigations by the Justice Department, states and a government
fraud task force over its sales of flawed mortgage bonds during the
run-up to the housing-market bust.
Bank of America's settlement with the Federal Housing Finance
Agency is the largest to stem from 18 lawsuits filed by the
regulator three years ago, seeking recoveries on more than $200
billion in mortgage-backed securities purchased by Fannie and
Freddie. The bank said the pact is expected to reduce its
first-quarter net income by $3.7 billion, or 21 cents a share.
The FHFA sued Bank of America along with Countrywide and Merrill
in 2011, seeking unspecified losses on $57.4 billion in
mortgage-backed securities. The FHFA had alleged that Bank of
America and its affiliates misrepresented the quality of loans
underlying those bonds.
The FHFA has now settled 12 lawsuits, collecting $19.1 billion
for Fannie and Freddie.
As part of the deal, Bank of America will repurchase securities
with fair market value of about $3.2 billion, and it will pay the
balance of the settlement, roughly $6.3 billion, in cash.
Mr. Lewis stepped down in 2009 but has faced a barrage of
litigation since then. He and other Bank of America directors
earlier agreed to pay $62.5 million as part of a settlement of a
civil lawsuit by investors that also claimed they failed to
disclose necessary information about Merrill before they approved
the takeover.
Bank of America in 2012 agreed to pay $2.43 billion to settle a
class-action lawsuit with a group of investors that alleged the
bank and its officers made false or misleading statements about
Merrill's health. In 2010, it agreed to pay $150 million in a
settlement with the Securities and Exchange Commission because of
its failure to disclose material information about Merrill. The
bank neither admitted nor denied wrongdoing in these earlier
settlements.
The Merrill acquisition, struck the same September 2008 weekend
that Lehman Brothers Holdings Inc. tumbled into bankruptcy, was
hailed as a rare piece of good news when much of Wall Street
appeared to be teetering on the brink. The deal, priced initially
at $50 billion, vaulted Bank of America to the top of the U.S.
banking heap, a goal that Mr. Lewis and his predecessor, Hugh
McColl, had pursued over two decades.
But the agreement soon became a problem, as analysts questioned
whether Mr. Lewis paid too much and as Merrill's losses snowballed
in the weeks before the deal closed.
Mr. Lewis and his top executives made the decision not to say
anything publicly about the problems before shareholders signed off
on the merger, a decision that formed the basis of a number of
Merrill-related suits.
Joe Price, the bank's former chief financial officer, was
included in the New York attorney general's suit but declined to
settle. Mr. Schneiderman plans in April to ask a judge to make a
ruling that Mr. Price be banned permanently from working at or
serving as a director of a public company, said a spokesman for the
attorney general.
A lawyer for Mr. Price, William H. Jeffress Jr. of Baker Botts,
said, "The bank and Ken are not admitting or denying anything as
part of their settlement but they are accepting certain relief. Joe
made a different decision and we will continue to defend the
case."
The legal scrutiny surrounding the Merrill acquisition
contributed to Mr. Lewis's decision to step down at the end of
2009. One headache was a yearlong investigation led by then-New
York Attorney General Andrew Cuomo that resulted in a 2010 lawsuit
against the bank, as well as Mr. Lewis. The bank tried to reach a
settlement with Mr. Cuomo before the suit was filed, but talks
broke down.
For years, Mr. Lewis told friends he intended to fight the
attorney general's suit because of his view that he did nothing
wrong. In recent months, though, Mr. Lewis changed his mind
because, at 67 years old, he worried that a long legal battle would
cost him precious years, said a person familiar with his thinking.
His wife also was an advocate for putting the matter behind them,
this person said.
"These were among the most turbulent financial times in American
history, " said a Bank of America spokesman. "Not only was Merrill
Lynch kept alive but it has prospered since joining Bank of
America."
After Mr. Lewis left Bank of America, he spurned offers from
other companies to become a public director. He now divides his
time between homes in Florida and North Carolina and trips to
California to see members of his family.
Write to James Sterngold at james.sterngold@wsj.com, Dan
Fitzpatrick at dan.fitzpatrick@wsj.com and Nick Timiraos at
nick.timiraos@wsj.com
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