BoA Fined Over Accounting Error Related To Merrill Lynch Acquisition

Stephen Little

30 September 2014

Bank of America has agreed to pay $7.65 million to settle charges relating to an accounting error it made five years ago following the acquisition of Merrill Lynch.

The Securities and Exchange Commission said yesterday that it had charged BoA Corporation with breaking federal securities laws for violating internal controls and record-keeping provisions.

According to the SEC, BoA miscalculated its regulatory capital from 2009 to 2013 because it failed to deduct losses on a portfolio of structured notes and other financial products it acquired when it purchased Merrill Lynch.

The regulator said that with each passing fiscal quarter and fiscal year, as more and more notes matured, BoA overstated its regulatory capital in its regulatory filings, eventually reaching billions of dollars.

After discovering the $4 billion overstatement in April, BoA disclosed the filing and cooperated with the SEC during the investigation, the regulator said.

“Bank of America self-reported its regulatory capital overstatements, remediated the issues quickly, and cooperated in our investigation,” said Andrew Ceresney, director of the SEC’s division of enforcement.

“This penalty reflects credit for that cooperation, which allowed us to conduct our investigation efficiently and effectively,” he added.

According to the SEC’s filing, the error grew from $888 million in 2009 to $3.7 billion in 2013. By the fiscal year-end of 2013, under new Basel III regulatory capital requirements, the error was more than $4.3 billion. This meant that BoA’s Common Equity Tier 1 Capital ratio was overstated by 0.3 per cent by the end of 2013.

Last month, BoA agreed to pay a record fine of $16.65 billion over its failure to disclose the risk to customers of its mortgage-backed securities in the run up to the financial crisis in 2008. The fine was the largest civil settlement with a single entity in American history and related primarily to conduct that occurred at Countrywide and Merrill Lynch prior to BoA’s acquisition of them before the financial crisis.