For a second there, it seemed like Bank of America (BAC) might be putting the Merrill Lynch tumult behind it. The Congressional action has stalled out, they finally did the much-expected management shakeup, and they quickly settled a lawsuit with the SEC pertaining to disclosure.
But the SEC settlement has been blocked by a judge, and now new emails cast doubt on the timeline of when BofA new about the big Q4 losses at Merrill, and when they were disclosed to shareholders.
WSJ: In a Dec. 3 email sent at 6:51 p.m. to several top bank executives, Bank of America Chief Accounting Officer Craig Rosato wrote: “4Q revenues need to be adjusted down by $3B.” That revision changed the estimated fourth-quarter net loss to $8.98 billion, worse than the previous Merrill forecast of $7.06 billion sent to a top Bank of America executive earlier the same day.
The emails and attached documents challenge Bank of America’s insistence that the losses at Merrill didn’t begin ballooning until after shareholders approved the takeover on Dec. 5. Bank executives said nothing publicly about Merrill’s problems until they spiraled into a net loss of $15.84 billion for the fourth quarter and the government bailed out Bank of America in January.
According to the report, there was significant debate internally on whether the projected losses were “material” enough to be included. The night before the shareholder vote, it was determined that they weren’t, though when you’re talking $2 billion, this seems like a dicey decision. If the losses really weren’t material, this would be the time to err on the side of legal caution.
As for the bank’s response:
Bank of America spokesman Robert Stickler said the internal documents reviewed by The Wall Street Journal “support what we have said all along.”
Internal projections by Merrill were “forecasting fourth-quarter losses prior to” the shareholder vote, but the forecast “increased significantly in the week following the vote,” he said.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.