The agreement represents the latest effort by Brian Moynihan, chief executive of the nation's second-largest bank by assets, to deal with the consequences of a pair of acquisitions the bank hastily made during the financial crisis: the 2008 acquisition of mortgage lender Countrywide Financial Corp. for $2.5 billion and the $19 billion Merrill Lynch purchase.
The pact shows that four years after the financial crisis, Bank of America continues to pay a hefty price for those deals, engineered by former Chief Executive Kenneth D. Lewis, who left the bank in 2009. Bank of America last year agreed to pay $8.5 billion to settle claims brought by investors who took a beating on mortgage bonds issued by Countrywide before the housing market collapsed.
Plaintiffs claimed Bank of America and certain of its officers made false or misleading statements about the financial health of Bank of America and Merrill Lynch. Bank of America said it denies the allegations and is settling "to eliminate the uncertainties, burden and expense of further protracted litigation."
"Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders," said Mr. Moynihan.
"As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients."
Share of Bank of America fell in morning trading on the New York Stock Exchange to $8.88. The company's shares traded as high as $39 in the month before it announced the Merrill acquisition in September 2008.
The Charlotte, N.C., company said it would make certain corporate governance changes as well, principally tied to compensation and board review of acquisitions.
The company, which has set aside tens of billions of dollars to pay legal costs tied to acquisitions and souring mortgages since the crisis, said it would take an additional litigation cost of $1.6 billion in the third quarter.
After the news, JMP Securities analyst David Trone adjusted his third quarter estimate to a loss of 17 cents per share.
"This settlement is far larger than we expected given the weak merits of such suits and historical precedence," he said in a note.
The lawsuit alleged Bank of America executives hid key facts from investors who were asked to approve the deal, including $15 billion of losses at Merrill Lynch and an agreement allowing Merrill to pay $5.8 billion in bonuses to executives and employees.
The settlement ranks as the top shareholder class-action payout tied to the financial crisis. Wachovia Corp., now part of Wells Fargo & Co., last year agreed to a $627 million settlement of claims that it misled investors about the quality of its mortgage portfolio. And just last month, Citigroup Inc. agreed to pay $590 million over allegations that it deceived investors by hiding the extent of its dealings in toxic subprime debt.
The Bank of America settlement also ranks as the eighth-largest securities class-action settlement of all time, behind historic payouts like $7.2 billion in settlements to shareholders of Enron Corp. and $6.1 billion to WorldCom Inc. investors, both in 2005.
"Any way you slice it, $2.4 billion is a big number," said Kevin LaCroix, a lawyer at RT ProExec, a firm that focuses on management-liability issues.
The settlement also is the largest securities class-action settlement where executives of the defendant weren't criminally charged, according to the Ohio attorney general's office, which was a party to the case. It estimates the state retirement systems of its teachers and employees will receive a total of $20 million in the settlement.
"Misleading investors with wrong or incomplete information is unacceptable and costly," the state's attorney general, Mike DeWine, said in a statement.