DealZone

BoA hearing: class-action fodder?

June 11, 2009

Ken LewisDennis Kucinich pointed out at a Congressional hearing Thursday that Merrill’s weekly losses in mid-November were greater than the losses in mid-December, and that Bank of America boss Ken Lewis got weekly updates on the investment bank’s losses. Lawmakers repeatedly said Lewis must have known much earlier than he claims about the heavy losses at Merrill, which lost $15.84 billion in the fourth quarter of last year.

That’s something that class action lawyers may latch on to, as they push their case over the Bank of America-Merrill Lynch deal, which hinges on what the bank disclosed and when.

Shareholders OK’d the deal on Dec. 5. Bank of America disclosed Merrill’s losses in January, after the deal closed. If shareholders knew of the losses before, the outcome could have been different.

Even just days before voting on the deal in December, shareholders appeared to doubt the likelihood of the merger going through on the original terms set in September. As of the close on Dec. 1, Merrill shares were still trading at an 8.3 percent discount to the Bank of America offer. 

At the Congressional hearing Thursday, Lewis said Ben Bernanke and Hank Paulson did not tell him what to tell shareholders. He said decisions on what to disclose to shareholders is made by “our securities lawyers and our outside counsel.”

But under questioning he also agreed with lawmakers that there was pressure from the government to complete the deal despite growing losses at Merrill. 

Clearly, Lewis was in a tough spot. But how would that play out in court?

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