Judge approves BofA $2.43 billion settlement over Merrill

The company logo of the Bank of America and Merrill Lynch is displayed at its office in Hong Kong March 8, 2013.

Credit: Reuters/Bobby Yip

By Bernard Vaughan

NEW YORK | Fri Apr 5, 2013 4:11pm EDT

NEW YORK (Reuters) – Bank of America Corp (BAC.N) on Friday won a federal judge’s approval for a $ 2.43 billion settlement with investors who said the lender hid crucial information when it bought Merrill Lynch & Co.

The accord, among the largest investor settlements stemming from the recent global financial crisis, was approved by U.S. District Judge Kevin Castel in Manhattan.

Bank of America had agreed to buy Merrill in an all-stock deal initially valued at $ 50 billion on September 15, 2008, the same day that Lehman Brothers Holdings Inc went bankrupt.

But Merrill ended up losing $ 15.84 billion in that year’s fourth quarter, even as it awarded $ 3.62 billion of bonuses to employees. Bank of America ultimately obtained a federal bailout, since repaid, to absorb Merrill.

Shareholders including the State Teachers Retirement System of Ohio and the Teachers Retirement System of Texas said Merrill’s mounting losses and bonus plans should have been disclosed before investors voted on the merger in December 2008.

The accord with the second-largest U.S. bank was announced in September, and won preliminary court approval in December.

While the Charlotte, North Carolina-based lender denied the plaintiffs’ allegations, Chief Executive Brian Moynihan has said the settlement would remove uncertainty for the company.

Since buying mortgage lender Countrywide Financial Corp in July 2008 and Merrill six months later, Bank of America has incurred more than $ 40 billion of extra costs for litigation, writedowns and mortgage buybacks, analysts have said.

The company still faces a variety of litigation over its mortgage operations, which have shrunk significantly in size, and over its underwriting of mortgage securities.

Bank of America is among 17 banks and lenders facing lawsuits by the Federal Housing Finance Agency over losses suffered by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) on mortgage securities.

The FHFA has sued Bank of America over $ 57.5 billion of securities, more than any other bank, that Fannie Mae and Freddie Mac bought, and which were sponsored or underwritten by Bank of America, Countrywide or Merrill.

In late afternoon trading, Bank of America shares were up 3 cents at $ 11.97 on the New York Stock Exchange.

The case is: In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058.

(Reporting by Bernard Vaughan; Additional reporting by Jonathan Stempel; Editing by Gary Hill and Dale Hudson)

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Reuters: Business News

Judge approves BofA $2.43 billion settlement over Merrill

Merrill Of America Cuts JCP Price Target To $13 On Pending Revolver Draw

When we reported on JCPenney’s horrendous quarterly results, we made the comments that when “speaking of [the] credit facility, JCP had no borrowings under its 2012 Revolver, and about $ 1.3 billion available net of L/Cs. Expect these numbers to change.” The reason we pointed this out, is that the second a retailer goes from “unused Revolver” to “used Revolver”, the bankruptcy deathwatch drums begin their steady beat. Indeed, it was only a matter of time before even the traditionally slow sellside brigade figured out that JCP’s liquidity is horrifying and about to get much worse, and moments ago Bank of America downgraded JCP by $ 3 to a $ 13 price target on expectations of an imminent revolver draw. To wit: “JCPenney intends to self-fund its transformation, but we think it will
need to draw down on the revolver as early as this quarter.” This explains why Ackman is down another $ 60 million in the name at last check.

From Bank of America’s Lorraine Huttchinson

Important shareholder begins liquidating stake; lowering PO

 

Vornado sells; lowering PO to reflect pressure on stock

 

Last night, the WSJ reported that Vornado (VNO), JCPenney’s third largest shareholder, is liquidating 10mn shares of JCPenney (54% of its 18.5mn share stake). Vornado’s CEO resigned last week and JCPenney was discussed on Vornado’s earnings call as being on Vornado’s “for-sale” list. Vornado was not willing to discuss a time frame for exiting its investment due to a conflict of interest (Steven Roth is on JCPenney’s board). We think Vornado could be back in the market in the near term to sell its remaining 8.6mn shares. Our work indicates that monetizing JCPenney’s real estate would be difficult and substantially less lucrative than the market initially thought. 

 

We are lowering our PO by $ 3 to $ 13 as we think the stock will remain under pressure due to deteriorating investor confidence in JCPenney’s turnaround, and we reiterate our Underperform rating. 

 

Time to put the real estate thesis to bed

 

In our recent department store real estate note, we evaluated the likelihood of JCPenney splitting itself into two publicly traded companies — a standalone REIT and an operating company. We concluded that JCPenney’s retail fundamentals are not sound enough to support a stand alone operating company and we do not think REIT investors have an appetite for owning single tenant mall anchor real estate. Vornado’s liquidation of its JCPenney stake supports our view that this was simply a non-core investment, without strategic purposes.  

 

Expect revolver draw in 2013, but ample liquidity for now

 

JCPenney’s balance sheet looks OK today but deteriorating fundamentals should cause pressure in 2013. The company has access to $ 3.1bn of liquidity including $ 0.85bn of cash (excluding deferred vendor payments made in 1Q), $ 1.85bn of revolver capacity, and a $ 0.4bn accordion on the revolver. JCPenney intends to self-fund its transformation, but we think it will need to draw down on the revolver as early as this quarter

Zero Hedge

Merrill Of America Cuts JCP Price Target To $13 On Pending Revolver Draw