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Investments

BofA to settle shareholders claims over Merrill Lynch for $2.43 billion

Bank of America (BAC) still has billions in potential liabilities tied to the Countrywide Financial legacy mortgage business, but the banking giant put one major suit behind it Friday by agreeing to pay $2.43 billion to settle an investor class action suit from 2009.

BofA also agreed to take further steps to enhance corporate governance through Jan. 1, 2015 to improve the quality of information about BofA to the bank's investors.

The case did not involve mortgages directly, but it was a challenge from investors who claimed BofA made false and misleading statements about the financial health of BofA as well as its post-financial crisis acquisition target, Merrill Lynch.

Not long after BofA acquired Merrill Lynch, the bank's investors filed suit over the merger, suggesting it negatively impacted the liabilities facing BofA.

Settling the investor lawsuit will cost $1.6 billion in litigation expenses for the three-month period ending Sept. 30, the bank said Friday. BofA will cover the settlement payout by tapping into its existing litigation reserves and recording an incremental litigation expense in the third quarter.

The hit to third-quarter earnings is expected to reach 28 cents a share, the bank said.     

"In addition to the litigation expense, the company expects that its third-quarter 2012 financial results will be adversely impacted by approximately $1.9 billion (pretax) in negative fair value option (FVO) adjustments and debit valuation adjustments (DVA) related to the improvement in the company’s credit spreads, and the previously reported charge of approximately $800 million to income tax expense for changes in the U.K. corporate tax rate and the related effect on the deferred tax asset valuation," BofA wrote in a statement.

BofA's settlement on the investor front is just one part of a litigation storm that's challenging the mega bank. The potential risk of loan repurchase claims from Fannie Mae and Freddie Mac alone is estimated to be around $19.3 billion, with the company incurring $16 billion in losses to date, Compass Point Research & Trading LLC said in a recent report. That estimate is only from GSE-repurchase risk, leaving additional risk on the private-label side with repurchase risks and litigation over Countrywide RMBS still lingering.

kpanchuk@housingwire.com

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