NationsBank and Bank of America Merger Halted by Ongoing Lawsuit

Strategic Insights -

The proposed merger between NationsBank and Bank of America on September 24, 1998, is facing a major setback due to an ongoing lawsuit filed by Lone Star Partners in 1992. The lawsuit claims that NationsBank defrauded Lone Star Partners in its bid to acquire FirstRepublic Bank in 1988. A Texas district court hearing is scheduled for October 1, and if Lone Star Partners prevails, the court could order NationsBank's assets derived from FirstRepublic to be placed in a constructive trust.

Key Takeaways:

  • The lawsuit, filed in 1992, alleges that NationsBank, working with Price Waterhouse, defrauded Lone Star Partners and prevented it from winning the bid for First Republic Bank.
  • The chronology of events, supported by testimony in depositions, reveals that NCNB (now NationsBank) created an agreement with Price Waterhouse to work on NCNB's bid for FirstRepublic in secret, without disclosing their work to other Price Waterhouse partners.
  • The lawsuit claims that NCNB's actions gave the company a bid advantage of $1.5 billion, while Lone Star Partners would have received a similar tax letter ruling if their accounting consultants were independent.
  • Hugh McColl III, the son of the Chairman of NCNB, mysteriously joined the bid team of NCNB and stated that "his Daddy's bank" was no longer interested in bidding for FirstRepublic.
  • Lone Star Partners filed suit against NCNB in 1992, alleging it defrauded Lone Star Partners. A summary judgment was granted to NationsBank in that suit, but was overturned by the Sixth Appellate District of Texas.
  • The value of the assets that could be transferred to a constructive trust for the benefit of Lone Star Partners is estimated to be over $18 billion.

Statistics:

  • The value of possible assets transfer: over $18 billion
  • Tax letter ruling advantage to NCNB: $1.5 billion
  • Timeline of events:

+ 1988: NCNB creates agreement with Price Waterhouse to work on NCNB's bid for FirstRepublic

+ 1992: Lone Star Partners files lawsuit against NCNB

+ 1993: Summary judgment granted to NationsBank

+ 1998: Proposed merger between NationsBank and Bank of America on hold due to ongoing lawsuit

Sources:

  • [PR Newswire, September 23, 1998]
  • [Chronology of facts, supported by testimony in depositions, filed in 1992]
  • [Lone Star Partners lawsuit vs. NCNB (now NationsBank)]
  • [Court documents]