Bank of America Corporation (BAC) recently settled a lawsuit related to its manipulation of the municipal derivatives contract. The litigation had been an overhang since Mar 2008. The banking giant will pay $20 million to the claimants as compensation.
The plaintiffs include the City of Baltimore, the Central Bucks School District and Bucks County Water & Sewer Authority in Pennsylvania.
Large banks often help municipalities to invest accumulated capital gained through bond offerings in a meaningful way. Generally, the bank with the best bid wins the contract.
David Einhorn's Greenlight Capital was down 0.1% for the first quarter, underperforming the S&P 500's 6.2% return. In their letter to investors, which was reviewed by ValueWalk, the Greenlight team said a lot happened during the first quarter even though they made just a handful of changes to the portfolio and essentially broke even. Q1 Read More
Notably, the above-mentioned parties alleged that large banks like BofA, Wells Fargo & Company (WFC),JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) entered into a tacit agreement of rigging the bid of municipal derivatives contracts. Due to the banks’ manipulation, healthy competition in the market was affected which led to lower returns for investors.
BofA faced a comparatively less number of charges mainly due to its early cooperation and its acceptance of manipulating prices to the U.S. Department of Justice. Earlier, in 2011 the company had paid $62.5 million to a settlement fund created by state attorneys general. This brings the total amount payout to $82.5 million.
Since 2011, other banks which settled similar lawsuits include Wells Fargo, JPMorgan and Morgan Stanley. While Wells Fargo agreed to pay $37 million, the settlement amount for JPMorgan and Morgan Stanley was $44.6 million and $6.5 million, respectively.
BofA is in the process of addressing and resolving various legal issues. Legal settlements are expected to partly reduce the company’s expense burden and help it to focus on core businesses.
Currently, BofA carries a Zacks Rank #3 (Hold).