Bank of America settles lawsuits

Paul Nowell

Monday, Feb. 11, 2002 | 10:58 a.m.

CHARLOTTE, N.C. -- Bank of America Corp. said Friday it will pay $490 million to settle class-action lawsuits filed by shareholders after the 1998 merger of NationsBank and BankAmerica.

Among other allegations, the lawsuits alleged wrongdoing that resulted in huge losses from the bank's relationship with New York hedge fund D.E. Shaw & Co.

The nation's third-largest bank said it would pay $333.2 million to NationsBank shareholders who sued on issues deriving from merger partner BankAmerica's connections to Shaw. Bank of America also said it would pay $156.8 million to former BankAmerica shareholders.

The payments will come from existing reserves and insurance, and will not affect the bank's financial results, the Charlotte-based bank said.

Bank of America Chairman Ken Lewis disavowed any validity to the allegations of the shareholders.

"While we believed our actions in 1998 were totally appropriate, we also felt it was best to get this litigation behind us," Lewis said.

He added: "These cases have taken an inordinate amount of management's time, and it is clearly in the best interests of shareholders that we are now free to devote our full attention to executing our customer-focused strategies in order to create future value for our shareholders."

Bank of America shares closed Friday at $60.60, up $1.65, Friday on the New York Stock Exchange.

In 1998, Charlotte-based NationsBank bought San Francisco's Bank of America, now the second-largest bank in Nevada, taking its name. Shortly after that, reports about the former Bank of America's involvement with the New York hedge fund resulted in the newly merged bank's decision to write down a $1 billion loan.

The debacle led to the resignation of David Coulter, chairman of the old Bank of America.

Bank of America had been facing a jury trial this spring in a class-action lawsuit on behalf of 300,000 NationsBank shareholders who were seeking up to $6 billion in damages.

Shareholders from California to Maine filed independent lawsuits.

In July, the U.S. Securities and Exchange Commission said BankAmerica should have disclosed its relationship as an investment in the hedge fund, which carries greater risks than a loan.

Bank of America disclosed in October 1998 that it lost $372 million on a $1.3 billion unsecured loan to D.E. Shaw, which saw its derivatives and bond trading strategies upended when Russia defaulted on bonds and devalued its currency in August 1998.