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Bank of America Inks $2.43B Settlement; Takes Earnings Hit

NEW YORK (TheStreet) --Bank of America (BAC) has reached a $2.43 billion settlement over a class action lawsuit related to its controversial acquisition of Merrill Lynch at the height of the financial crisis.

The bank also said Friday that incremental legal expenses, along with an improvement in its credit spreads and a U.K. tax charge will shave off 28 cents from its third-quarter earnings per share. Bank of America is scheduled to report earnings on October 17.

The 2009 lawsuit alleged that Bank of America and its former executives had made false or misleading statements about the health of Merrill Lynch during its takeover in 2008.

Bank of America denies the allegations and says it is settling to remove uncertainties related to protracted litigation.

"Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders," said Chief Executive Officer Brian Moynihan in a statement. "As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients."

Bank of America will cover the settlement through existing litigation reserves and incremental litigation expenses. Total litigation expense for the third quarter would be $1.6 billion.

Under the settlement, the bank will also introduce certain "corporate governance enhancements" until Jan.2015 including "those relating to majority voting in director elections, annual disclosure of noncompliance with stock ownership guidelines, policies for a board committee regarding future acquisitions, the independence of the board's compensation committee and its compensation consultants, and conducting an annual "say-on-pay" vote by shareholders. "

The company also said that it expects its third-quarter financial results to be adversely impacted by approximately $1.9 billion (pretax) due to a debit-valuation adjustment (DVA) related to the improvement in the company's credit spreads and the previously reported charge of approximately $800 million to income tax expense for changes in the U.K. corporate tax rate and the related effect on the deferred tax asset valuation.

Shares of Bank of America were down 1% at the open.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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