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B of A Settles Suit Over Bonds for $187.5 Million

Banking: It had been accused of pocketing unclaimed payments in state and city accounts.

November 13, 1998|From Bloomberg News

BankAmerica Corp. agreed Thursday to pay $187.5 million to settle a lawsuit by the state of California, the city of San Francisco and other local governments that claimed the bank fraudulently mishandled municipal bond accounts.

BankAmerica, the biggest U.S. bank since its $40-billion merger with NationsBank Corp. in September, said it will distribute the money among 300 plaintiffs, based on a formula it will present to San Francisco Superior Court next month.

The settlement follows two years of negotiations between the bank and local governments, which accused BankAmerica of systematically pocketing unclaimed bond payments in its role as a trustee and paying agent.

Investors said they were relieved it wasn't more money, since San Francisco had said it would seek as much as $1 billion in damages and interest.

"It's much less than the aggressive, bad scenarios" that BankAmerica faced in the case, said Scott Edgar, research director at Sife Trust Fund, which owns more than $1.1 billion in financial stocks. A $187.5-million payment "for an organization this large isn't that big a deal," he said.

"This settlement will make up for any prior inadvertent mistakes and allow us to avoid the costs of very expensive litigation," the bank said.

BankAmerica shares fell $1.25 to close at $55.75 on the New York Stock Exchange.

The suit, scheduled to go to trial in the spring, was originally filed as a whistle-blower suit by former BankAmerica employee Patrick Stull in 1995. The city of San Francisco and state and other local governments joined in, saying that the funds involved should have been returned and could have been used to pay for schools, roads, hospitals and other civic improvements.

Stull will receive "somewhat less than 14%" of the total settlement, said his attorney, Jim Haydell.

After legal fees and other costs totaling about $20 million are paid, the state and local governments will divide the rest, officials said.

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