BankAmerica Sued over Hedge Fund Losses

American Banker, November 3, 1998 | Go to article overview

BankAmerica Sued over Hedge Fund Losses


By GILLAM, CAREY

The new BankAmerica Corp. is facing at least 16 shareholder lawsuits alleging a failure to disclose the extent of its recent losses.

The suits, filed in New York, California, and North Carolina, were characterized by one observer as "ambulance chasing at its best."

But they could be highly distracting, if not costly, at a time when the newly combined operations of BankAmerica and NationsBank Corp. are striving to take full advantage of their unique coast-to-coast status.

Such class actions can drag on for years, and related costs could run into tens or even hundreds of millions of dollars, according to securities litigation specialists.

Still, most observers said they believe the litigation will have little effect on the Charlotte, N.C., banking company's bottom line.

"I can't say if the suits have any merit, but I can say they are not impacting (earnings) estimates," said R. Jay Tejera, an analyst with Dain Rauscher Wessels. "No clients are bringing it up. It's almost a non-event."

BankAmerica officials refused to discuss the lawsuits, other than to declare them "without merit," said spokesman Robert Stickler. They vow to "defend them vigorously."

Wachtell Lipton Rosen & Katz in New York represents BankAmerica in the cases.

The plaintiff attorneys, all frequent filers of shareholder actions, include Abbey Gardy & Squitieri, Bernstein Litowitz Berger & Grossman, Milberg Weiss Bershad Hynes & Lerach, and Wolf Popper.

The petitions seek damages for several different classes of investors. Among them are shareholders who were eligible to cast a vote on the merger, which closed Sept. 30, and individuals who traded put or call options related to the deal.

The filings from the multiple plaintiff-bar law firms, which purport to represent thousands of shareholders and seek an undetermined amount of damages, are based on the premise that BankAmerica officials violated securities laws by keeping investors in the dark about the extent of losses.

When it reported third-quarter earnings Oct. 14, BankAmerica disclosed that it had charged off $372 million of an unsecured $1.4 billion loan to hedge fund operator D.E. Shaw & Co. of New York, and had made a $500 million provision for overseas trading losses. As a result, net income fell 78%.

Two weeks earlier, at a news conference heralding the newly minted merger, BankAmerica chairman and chief executive officer Hugh L. …

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