Bank of America's legal woes? No worries for investors
Filed under: Goldman Sachs , Bank of America
Lately it seems that barely a day passes without a new legal headache arising for Bank of America (BAC). Monday was no different, as a group of pension funds filed a class-action suit in a federal court in Manhattan seeking "billions of dollars" in damages stemming from bonuses paid to Merrill Lynch executives around the time of the companies' merger late last year.The suit comes after a federal judge tossed out a settlement between Bank of America and the SEC over similar issues and brings the two sides closer to a trial next year. And it's just one of several high-profile investigations into the Merrill takeover, including a congressional inquest and a probe by the New York attorney general, among others. Yet Bank of America's stock has remained resilient, outperforming the S&P 500 on the year and climbing 435 percent since falling to $3.14 in early March. Shouldn't investors be more worried?
Not necessarily, says banking analyst Nancy Bush of NAB Research. She's been following bank stocks for big firms such as Dean Witter, Brown Brothers Harriman and Prudential (PRU) as well as smaller boutiques, including her own, since the mid-1980s. I caught up with her last week to get her take on the company's legal woes.
We also discussed the legacy of former Federal Reserve Chairman Paul Volcker, who told a congressional committee last Thursday that he'd like to see a return to Depression-era financial regulations that would force companies such as Bank of America to choose between being deposit-taking banks and securities-dealing investment houses. Such a change could go a long way toward preventing firms from becoming "too big to fail," he said. (Being among those too big to fail may be another reason Bank of America shareholders aren't particularly worried about the investigations it faces.)
Here are the highlights of my chat with Bush:
DailyFinance: Do you think BofA's stock reflects the risks it's facing?
Bush: There may be some additional legal penalties involved in this. But the offset is that Mr. Lewis' job may be on the line. If there's a charge of civil fraud that causes him to resign, are investors necessarily going to be that upset? Probably not.
Would they be worse off? They might not see themselves that way.
There has been such a drumbeat of one thing after another that it has become part of the daily noise around the stock. In other words, people are just discounting it at this point because there's just so much of it.
So do you think it would take a real development to move the stock at this point?
You know, I don't even know what that could be at this point. So what if management gets displaced? Big deal. What else could happen, that they fine them a bazillion, gadzillion dollars? They're not going to do that. So I don't know what could happen at this point that could make people feel that bad. The market is focused on the prospects for the company, and all this other stuff has just become noise.
Paul Volcker's testimony before Congress suggests he'd like to bring back the Glass-Steagall Act. What's your take on that?
I love that man. I don't know if we should bring back Glass-Steagall. But we clearly should delineate between commercial banking and investment banking. They should be supervised differently, they should be capitalized differently. This stuff about Goldman Sachs (GS) deciding they want to be a bank holding company, but now they might not want to be anymore because, gee, that has pay constraints -- it's crap. It's just absolute crap.
They're an investment bank. Supervise them like an investment bank and separate them from commercial banking, along with everyone else.
The man is absolutely right. Bringing back Glass-Steagall may dial us back a bit more than we need to be dialed back at this point, but I think his general thought process is extremely correct and I don't know why people aren't listening to him.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 1)
9-28-2009 @ 6:07PM
Indira said...
Consumer Protection Law: My father is in search of what to do in regards to his problem with his Auto Insurance company's agents and how he should go about filing a report or pressing charges, which would help lead to litigation or some kind of compensation for the ethical breach his auto insurance company's agents committed. He is a customer of All State Auto Insurance and wrote them a check for the exact amount of $165.00, in which they took the liberty of altering his check and changing the digits into $166.55 on his check without his consent or him being the one to do it. He called them about their crime and they made a mocking apology by apologizing with the added excuse that they "had to change the amount on the check for you", committing identity fraud. As the sincerity of such an apology is to cover their own mistake and no remorse for him as a consumer. There is more to the facts that he would have to tell you because it is his case. Throw in occupational fraud as another charge for all these corrupted companies and I can give the psychological profile for their emotional intent because I have my own history as a consumer where both of these companies representatives, All State and Bank of America have left a bad taste in my mouth.
Reply
9-28-2009 @ 6:42PM
gd said...
Hire a lawyer and he will help you recover your $1.55 which you or your dad probably owed them any way. It was so horrible of them to keep your dad covered. They should have sent the check back and quite possibly let your Dad's policy lapse. Yes you have been wronged horribly, to the barricades, to the barricades.
9-28-2009 @ 7:58PM
Hannah said...
Have him contact and file a complaint with the Insurance Commission in your state. It was a small amount of money, but what they did was not legal, not to mention unethical. The employee(s) who did this should be terminated as well. He may be able to file criminal charges with the local police for check fraud as well. Best wishes.
9-29-2009 @ 12:33AM
Frank said...
Allstate probably encoded the amount of 166.55 on your check and sent it forward to B of A for payment. B of A simply paid what it was encoded for. Take the check to Bank of America within 30 days of receipt of your banking statement and you will be refunded $1.55. B of A can then decide if they want to proceed back to Allstate to reclaim their $1.55 (they won't). You don't need an attorney, it will do you no good against B of A, it was not their fault. By the way, if you did owe the $1.55 to Allstate they may have done you a favor to alter it, otherwise they can let you policy lapse for non-payment of premium, which is what I would do to get rid of a customer like you.
9-28-2009 @ 6:48PM
danzillo4 said...
Why should they or wall street worry they have Schumer, Dodd, and the rest of them in their pocket....
Reply
9-28-2009 @ 7:24PM
Herb said...
Volcker is correct. As usual the Congress screws things up, and then is the one that is supposed to correct it. How crazy is that?? There are BIG bucks involved with commercial banks NOT to let legislation take us back to Glass-Steagall.
So just be prepared to ante up the funds for the next bailout because greedy SOBs have led a bank or investment bank down a risky path that taxpayers will have to bail out because they are "too big to fail" Large corporations are all about "capitalism" until they need the government and taxpayers to bail them out.
Reply
9-28-2009 @ 7:31PM
paul said...
Bank of America seems to have been invited to Right party at the Right time with the Right People. It's time for BofA to accept the responsibilites of hiding the truth behind the Merrill Lynch bonus payouts.
Legal actions and lawyer-client privileges are going to waste a lot of time and government costs. The judge should enforce the (Ricco Act) on all participates involved in this case. Allow the ML 700+ bonus recipients a chance to return their paid bonus or face trial by a jury of their peers.
All Bof A senior management plus Bof A's legal counsel during the acquistion of ML need to testify as to the legality of their actions.
When corporate America sees that our judical system is working to protect innocent shareholders as it should, then this GREED amongst corporate CEO will stop.
Reply
9-28-2009 @ 8:01PM
jack said...
N.Y. attorney geneneral came late to the party. Now he wants his 15 minutes of fame.
Reply
9-28-2009 @ 8:00PM
kluj said...
up 435 percent. ah hauh. what they forgert to tell you is that everyone who owns it got in at the top and held it all the way down. they are not even close to getting even but it makes people feel better to say its up 435 percent. even worse is the fact that it is paper profit until sold and my guess is everyone will hold on trying to get back to even and instead they will wake up some morning to a total meltdown with a huge gap down opening and no chance to get out with what little they have left. classic human behavior!
Reply
9-28-2009 @ 8:24PM
jose said...
forget the bonuses, look into the brokers and the books , i suspect there is more , than just bonuses at stake here at more-lynch , there has got to be , paid bonuses for what , for screwing the investor , ha ha I say , let the fed look deeper into more-lynch and bofa and who urge them on to make this deal.
Reply
9-28-2009 @ 8:40PM
Kg2009 said...
Let the dice roll, in the end the share holders are going to get the shaft again. I hope the Court goes after them personally.
The reaper will have his 15 minutes to.
Reply
9-28-2009 @ 9:12PM
Robert Collier said...
gd, Your thinking is what's wrong with the world today!!!!!!!
Reply
9-28-2009 @ 9:21PM
Andy said...
Of course there not sweating it. They know they will get away with it. There in bed with the fed who is the real gov.
Reply
9-29-2009 @ 8:25AM
lar said...
What am I missing here? The Ohio AG sues B of A for misleading it's shareholders on the Merrill bonuses. If he wins, B of A has to give several hundred millions of the SHAREHOLDERS dollars to some OHIO pension funds.
To the B of A shareholder it looks like screw me once, screw me twice.
Is this justice?
Reply
9-29-2009 @ 8:17AM
Allen said...
BofA is now refusing to honor the Protection Plan Services
(Mortgage Insurance) policies they issued. This is definatelly going to result in a major class action suit, as they enjoyed collectiing the premimums every month. The investors at BofA had better take heed.
Other interesting reading on litigation for BofA can be found on www.law360.com.
It is amazing the litigation the big three Banks are facing or experienced.
Reply
9-29-2009 @ 10:24AM
JTBCat said...
SUCK IT BANK OF AMERICA!
Reply