Bank of America Stock Losses

Full-Service Brokerage Firms Who Failed to Recommend Risk Management Strategies to Protect Concentrated Positions in Bank of America Stock May Be Responsible for Damages

Bank of America shareholders who acquired shares through investment, employment, inheritance or as a founding member of a predecessor bank, and maintained large concentrated stock positions with full-service brokerage firms may recover losses for sales practice violations. Full-service brokerage firms are obligated to give, and investors in Bank of America stock are entitled to rely upon, brokerage firms for competent, suitable investment advice concerning risk management strategies for concentrated stock positions in Bank of America stock. Brokerage firms are required to supervise the activities in brokerage accounts, losses from concentrated stock positions in Bank of America stock can be attributed to the failure to adequately supervise the stockbroker and the brokerage account. Investment losses in Bank of America stock that are the result of unsuitable investment advice and/or failure to recommend appropriate risk management strategies for unprotected concentrated stock positions are both causes of action that may be available to investors against their full-service brokerage firm in an individual securities arbitration claim filed with FINRA.

Bank of America History of Mergers and Acquisitions

During the 1990s, Bank of America’s corporate growth strategy was to increase bank deposits through the acquisition of bank holding companies and their wholly-owned regional banks such as Seattle-First National Bank, Security Pacific National Bank, Continental Illinois National Bank and Trust Company and Penn Square Bank. In 1997, Bank America suffered substantial loan losses which resulted in the acquisition of Bank of America by Charlotte-based NationsBank and the merged bank assumed the name, Bank of America.

On January 11, 2008, Bank of America announced the purchase of Countrywide Financial for $4 billion in an all-stock transaction. Countrywide Financial shareholders’ investment was virtually wiped out when they received 0.1822 shares of Bank of America for each share of Countrywide Financial held. The purchase made Bank of America the largest mortgage originator and servicer in the U.S., controlling 20-25% of the home loan marketplace.

After the collapse of Lehman Brothers and the placement of Fannie Mae in conservatorship, Bank of America stood in the maelstrom of the financial system collapse. On September 15, 2008, Bank of America announced the acquisition of Merrill Lynch for $50 billion in an all-stock transaction. Merrill Lynch shareholders’ received 0.8595 shares of Bank of America for each share of Merrill Lynch held. The federal government provided guarantees against Merrill Lynch operating losses which ultimately became insufficient to offset the financial hemorrhaging from the acquisition of the brokerage giant.

The losses from the acquisition of Countrywide Financial and Merrill Lynch continued to erode Bank of America’s retained capital which has been reflected in the stock price which has declined precipitously since the high profile acquisitions. Many investors maintain concentrated stock positions due to personal reasons such as tax deferral, restricted stock grants (Rule 144), employee stock options, or any number of considerations. There is a specific risk management strategy that is suitable for each investor holding a concentrated stock position.

According to financial industry standards of care, when an account is concentrated in a particular stock such as Bank of America stock an investor assumes potentially catastrophic risks and is considered unsuitable for risk adverse investors who do not implement risk management strategies to protect the value of the concentrated position. If the financial advisor fails to recommend the suitable risk management strategy for an investor’s particular circumstance, there is a potential claim for negligence and a failure to supervise the activities in the account. Bank of America investors should consider what recourse is available to recover their investment losses for shares held with a full-service brokerage firm.