BofA Charged by Pension Fund – Analyst Blog

On Wednesday, Bank of America Corp. (BAC), also known as BofA, was reportedly sued by the Dutch Pension Fund, ABP, for withholding information to shareholders regarding the quarterly losses of Merrill Lynch when it was being voted for a merger in December 2008. APG Algemene Pensioen Groep NV (APG), which manages ABP’s assets, has filed the lawsuit on behalf of ABP, seeking damages of as much as $91 million for the misrepresentation.

 

According to the charges, BofA intentionally hid the secret agreement whereby the fourth quarter loss of Merrill of over $15 billion remained undisclosed. Besides, a bonus payment of approximately $5.8 billion was guaranteed to Merrill’s staff upon merger in January 2009.

 

Further, BofA has been facing the brunt of this disingenuous act from all corners of the industry. The Securities and Exchange Commission (SEC) has also sued the bank twice for misleading investors regarding the bonus payments, charging a fine of $33 million in August 2009 followed by a second settlement charge of $150 million in February 2010.

 

 

Over the last 30 days, 3 of 21 analysts covering the stock have lowered their estimates for the first quarter of 2010, while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for first quarter is operating earnings of 9 cents per share, which would be down by 83.2% from the year-ago quarter.

 

The absence of upward estimate revisions for the first quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.

 

With respect to earnings surprises, the stock has been slightly steady over the last four quarters, with two positive surprises. The average remained positive at 201.6%. This implies that BofA has surpassed the Zacks Consensus Estimate by 201.6% over that period.

 

The downside potential for the estimate in the first quarter, essentially a proxy for future earnings surprises, currently stands at 11.1%.

 

Finally, with ABP’s lawsuit, the differences of opinion with regulators and lawmakers over Merrill’s 2008 bonus payment issues amid escalating losses do not appear to bury the predicaments of BofA in the near future. This could further pressurize the company’s financial results in the upcoming quarters.