Bank of America Corp agreed on Friday to pay $2.43 billion to settle a shareholder lawsuit over its 2008 buyout of Merrill Lynch in one of the largest-ever settlements of a securities fraud class action.
The bank said it expects to incur total litigation expenses of about $1.6 billion in the third quarter ending September 30. That expense and a U.K. tax charge are expected to hurt the bank's earnings by about 28 cents per share for the quarter, it said.
The pact also calls for the bank to make changes to its corporate governance through January 1, 2015.
The lawsuit filed in 2009 contended Bank of America and its officers made false or misleading statements about the financial health of Bank of America and Merrill Lynch before the acquisition, leading the bank's stock price to tumble when the facts were revealed.
Bank of America denied the allegations and said it settled to end the long drawn-out litigation.
"Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders," Chief Executive Brian Moynihan said in a statement.
Bank of America shares slipped 11 cents, or 1.2 percent, to $8.86 on the New York Stock Exchange.
In a research note, banking analyst David Trone of JMP Securities said the settlement was "far larger than we expected given the weak merits of such suits and historical precedence."
The deal, which requires court approval, heads off a trial that had been set to begin before U.S. District Judge Kevin Castel in Manhattan on October 22. The settlement was reached after discussions led by a mediator, former U.S. District Judge Layn Phillips, lawyers for the plaintiffs said in a statement.
A hearing has been scheduled to discuss the settlement at 3:30 p.m. EDT (1930 GMT) Friday, according to a courtroom deputy in Castel's chambers.
Lead plaintiffs included the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System and the Teacher Retirement System of Texas.
"Not only did we accomplish an excellent financial recovery, but other companies will look at the result here and think twice about not fully disclosing all necessary information to their shareholders," Ohio Attorney General Mike DeWine said in a statement.
Bank of America is scheduled to report third-quarter results on October 17.
(Reporting by Martha Graybow in New York, Tom Hals in Wilmington, Delaware, Rick Rothacker in Charlotte, and Tanya Agrawal in Bangalore; Editing by Supriya Kurane and Jeffrey Benkoe)