Tar Heel Tattler - May 2005

BofA finds it pays to scuttle scandals
By Frank Maley

Imagine that your bank had paid more than $1.1 billion to make two legal cases go away in the past couple of months. And fessed up to losing credit-card data for up to 1.2 million customers. You might think twice about doing business with it. Charlotte-based Bank of America Corp. did all those things, but it didn’t seem to matter. “It’s funny how it just doesn’t seem to stick,” says Tony Plath, associate professor of finance at UNC Charlotte.

In February, BofA agreed to pay $675 million — without admitting guilt — to end a federal Securities and Exchange Commission investigation of its mutual-fund trading. The SEC had accused the bank and its year-old acquisition, FleetBoston Financial, of market timing, trading shares to take advantage of price differences in different markets, and of late trading, buying and selling shares after markets close.

In March, the bank announced it would pay $460.5 million to settle lawsuits by investors who had bought bonds of WorldCom before the Clinton, Miss.-based telecom giant filed for bankruptcy amid fraud accusations in 2002. The suits contended that BofA brokers sold them bonds when they should have known the company was on the ropes. Also in March, BofA admitted that it had lost computer tapes containing personal information on as many as 1.2 million federal workers.

True, BofA’s stock price slipped 5% in March, but at least some of that could have been caused by other concerns such as rising interest rates. One ingredient in BofA’s Teflon coating is timing. Its problems have come after a series of bigger scandals. “They did the wrong thing at the right time,” Plath says.

While most of the accusations are about technical matters beyond the ken of average bank customers, the company can counter with one easy-to-digest statistic: Net income jumped 30% to $14 billion in 2004. BofA also has been able to manage its bad news. It often employs a standard PR tactic of settling lawsuits — even though some might see it as an admission of guilt. “A lot of what I see them doing, it doesn’t necessarily surprise me,” says Adam Bernstein, a principal at Charlotte-based Carolina Public Relations. “But I’m always impressed with how they’re able to manage it.”