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Bank of America: Settlement Loser

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report) was the loser among the largest U.S. financial companies on Friday, with shares pulling back 2% to close at $8.81.

While investors were waiting for an expected downgrade of Spain's bonds by Moody's Investor Service, the broad indexes pared earlier losses, after an independent audit showed that Spain's banks had a capital shortfall of "only" 53.75 billion euro, which was far less than the 100 billion bailout credit line already agreed to by the European Union.

Back home, the Institute for Supply Management announced that the Chicago Purchasing Managers Index fell to 49.7 in September from 53 in August, for its lowest level in three years. An index reading below 50 indicates contraction. On a brighter note, ISM said that "among the Business Activity measures, five of seven posted declines as New Orders fell below 50 and Order Backlogs contracted for the fourth of the past five months. Prices Paid showed the biggest gain in nearly two years and Supplier Deliveries moved back above 50."

The KBW Bank Index (I:BKX) declined slightly to close at 49.56, with 16 of the 24 index components showing declines to round out the week.

After reversing their 2% gain on Thursday, Bank of America's shares have now returned 59% year-to-date, following a 58% during 2011.

The shares trade for 0.7 times their reported June 30 tangible book value of $13.22, and for ten times the consensus 2013 EPS estimate of 91 cents. The consensus 2012 EPS estimate is 55 cents.

Bank of America on Friday announced it had agreed to pay $2.43 billion to settle a class action suit brought in 2009 by investors against the company and "certain of its officers and directors," over claims that the bank and its executives made misleading statements when the company acquired Merrill Lynch.

The settlement has to be approved by Judge Kevin Castel in the United States District Court for the Southern District of New York.

In addition to litigation expenses of $1.6 billion, Bank of America said its third-quarter results would be "impacted by approximately $1.9 billion (pretax) in negative fair value option (FVO) adjustments and debit valuation adjustments (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."

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