Bank of America Corp.
(BAC) agreed to settle a class-action lawsuit against Merrill Lynch & Co. for $150 million. The lawsuit accused Merrill Lynch for misleading investors with respect to the sale of bonds and preferred stock.

The preliminary approval of the settlement, granted by US District Judge Jed Rakoff on Aug. 21, was made public yesterday.

Two Louisiana pension funds were the major applicants for the lawsuit. About 20 former Merrill executives and directors were named as defendants. The company was accused of issuing false and misleading prospectuses and registration statements in the offerings between 2006 and 2008.

Bank of America acquired Merrill Lynch on Jan. 1, creating the largest U.S. bank by assets.

We think that Bank of America is in relatively good shape from a capital perspective. During this delicate period of market stress, the availability of significant private-sector capital is very limited. As a result, management remains focused on managing asset-levels efficiently, ensuring the deployment of TARP funds in core lending businesses and trimming other assets in non-core businesses.

We also think that the management is quite confident about its capital position as it has recently indicated that it is in discussion with regulators for paying back a material amount of TARP funds.

We anticipate continued synergies from the company’s large-scale operation and balance sheet restructuring. However, higher credit costs and worsening credit quality will be a drag on upcoming results.

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