AP News, December 29th, 2007
Former shareholders of First Republic Bank sued Merrill Lynch & Co. on Friday, alleging the company hid billions of dollars in subprime mortgage-related losses while the two companies' combination was pending.
The suit, filed in New York, seeks class-action status, unspecified damages for shareholder losses and a jury trial. Top Merrill executives, including former CEO Stan O'Neal, were also named as defendants.
The Wall Street bank agreed in January to buy San Francisco-based First Republic for about $1.8 billion in cash and stock.
In October, a month after the deal closed, Merrill reported that it was taking a writedown of about $8 billion in the third quarter because of the declining value of mortgage-backed debt. The writedown — the largest in Merrill's history — wiped out the bank's earnings for 2006.
Merrill officials said errors in risk management contributed to the staggering loss, but none of that information was disclosed in the registration or proxy statements on the merger, according to the lawsuit.
As a result, First Republic shareholders were relying on "materially false and misleading" statements before approving the sale to Merrill, the suit alleged.
Merrill disputed the claims: "We made all appropriate disclosures," Bill Halldin, a spokesman for Merrill, said.
Merrill's O'Neal was ousted in November in the wake of the mortgage-lending crisis that has led to an estimated total of $105 billion in losses this year alone for global banks.
The case was filed in the U.S. District Court, Southern District of New York by the law firms of Pomerantz, Haudek, Block, Grossman & Gross LLP and Cotchett, Pitre & McCarthy.
