Ex-BofA Chief Lewis Charged With Fraud
New York Attorney General Andrew Cuomo unveiled a major legal action against senior Bank of America executives Thursday over its controversial purchase of Merrill Lynch, including bringing civil charges against its former CEO Ken Lewis.
Cuomo's office, which has been aggressively pursuing an investigation into the merger and subsequent bonuses paid to former Merrill employees, said it was charging Lewis and Bank of America's chief financial officer Joe Price, who was recently appointed to lead the firm's consumer banking business.
The lawsuit contends that the bank's management team understated the losses at Merrill in order to get shareholders to approve the deal, then subsequently overstated the firm's willingness to terminate the merger in order to get $20 billion of additional aid from the federal government.
"Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large," Cuomo said in a statement.
"This was an arrogant scheme hatched by the bank's top executives who believed they could play by their own set of rules."
A spokesperson for Bank of America called the charges "regrettable" and "totally without merit."
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Separately, the Securities and Exchange Commission said Thursday it had struck an agreement with Bank of America over the company's decision to pay $3.6 billion of bonuses to former Merrill employees for fiscal year 2008.
Under the terms of the proposed settlement, the Charlotte, N.C.-based lender will pay a $150 million penalty to its shareholders who were affected by the disclosure violations.
The company also agreed to implement a number of corporate governance changes for the next three years including giving its shareholders an advisory vote, or "say on pay" of its executives.
The settlement will be subject to the approval of U.S. District Court Judge Jed Rakoff, however.
Rakoff scuttled a previous agreement between the two parties last fall, arguing that the original $33 million settlement was not only paltry, but would only impact those who were hurt by the bonus scandal: the company's shareholders.
Bank of America (BAC, Fortune 500) shares fell more than 3.5% in midday trading.
Bank of America Bonuses Could Top $4 Billion
Bank of America Corp., the nation's largest lender, will pay investment-banking employees bonuses of about $4.4 billion for last year, or an average of $400,000 each, a person close to the bank said.
As much as 95 percent will be paid in stock vesting over about three years, the person said. Those receiving the smallest bonuses will get about half their compensation in cash, paid later this month, the person said. The unit accounts for 10,000 people, or 4 percent of the Charlotte-based bank's 283,000 workers.
Bank of America, the target of political wrath for its acquisition of Merrill Lynch & Co. even as the faltering Wall Street firm handed out $3.6 billion of employee bonuses, reaped a $6.3 billion profit in 2009. This year's investment bank bonuses are a third less the than $6.5 billion that the combined units would have paid in the peak year of 2006, the person said, citing internal Bank of America calculations.
"Fixed-income traders are receiving the biggest bonuses at Bank of America and other firms because that was what drove Wall Street profits last year," said Richard Lipstein, managing director at Boyden Global Executive Search Ltd. in New York. "Psychologically Wall Street is paying people compared with 2006 levels because 2008 was such a disaster."
The Financial Times cited unidentified people as saying that top Bank of America performers in global banking and markets will receive bonuses of about $5 million, while managing directors will get $2.5 million to $3 million. Senior investment bankers often receive bonuses that are eight to 10 times their base salaries, which tend to be $250,000 to $300,000, Lipstein said.
"We attempted to balance the need to pay competitively with our understanding of the general concern over the level of compensation on Wall Street," spokesman Bob Stickler said. "The most important thing is that much more of year-end compensation is now deferred and tied to long-term stock performance and there are clawbacks."
Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.'s investment bank slashed their compensation in the fourth quarter. The three firms set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion. The total fell short of the $46.1 billion five analysts expected this year and is almost $10 billion less than what some analysts estimated in October.
JPMorgan's investment bank had the lowest ratio of the three of total pay to revenue, at 33 percent. Goldman Sachs's rate was 36 percent and it was 62 percent at Morgan Stanley.
At Bank of America, the bonuses equate to 19 percent of the $23 billion in revenue at the investment bank. That ratio would have been 26 percent in 2006, the person briefed on the matter said.
Bank of America is relying on growth in Merrill's capital markets and wealth management units. The bank, which bought Merrill last January, plans to add "hundreds" of trainees this year as it rebuilds its stock brokerage unit, spokeswoman Selena Morris said, declining to provide a specific number. Merrill had 15,006 financial advisers at the end of 2009, down from almost 18,000 at its peak several years ago, she said.
About 80 percent of Merrill's brokerage revenue stem from financial advisers who were trained by the company, with the balance from brokers recruited from peers, Morris said. Merrill Lynch's wealth management unit had revenue of $6.1 billion last year, six times greater than Bank of America's stand-alone brokerage business in 2008.
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