Previous Post for Bank of America on General Litigation and Process Changes

Well we have proposed a General Litigation Model for Bank of America which will save them 4B dollars a year in legal costs dropping their SGA from 53B to 49B or in-line with Wells Fargo on the same sales. This should result in companies which have nearly the same market value, and return Bank of America to the #2 largest bank from its current position as #3.

Okay so by adding a wrinkle that Branch Managers including the Investment Bank will be charged for all litigation incurred to their book of Business, then we have to allow those Branch Managers to resolve their own legal charges.

Since we know that a cause which goes to trial today costs at a minimum 330K dollars, and under the new format 660K dollars we should give branch managers to resolve federal claims which live between 75K dollars and 660K dollars in value to the customer themselves. We also have to give the branch manager the right to terminate that particular customer at the same time.

For example, a customer has an error in his statement or timing of a trade which legitimately cost him 50K dollars. The customer is claiming 3M dollars in damages to his business for lost income or inability to repay a transaction, the branch manager would have the power to literally write a check up to 400K dollars to resolve any claim(25%), with the only caveat that the settlement be on standard Bank of America settlement paper, and which may if checked terminate their future relationships both personally and as a corporation with the company. Such a check would require a corporate Vice President to reverse in the future.

I expect such power would likely eliminate more than 75% of the current litigation at 25% of the value of the cost of the current process. I expect an average settlement to be in the $150K range instead of 330K dollars. And some branch managers would have the power to offer other products and services in addition to cash to keep the customer if they want to. Ie free payroll services, free electronic banking, and free wire transfers as an offset.

So in this model of Branch Empowerment, we expect to eliminate 75% of Federal lawsuits in the branch which is in-line with other companies in the Industry. This will also eliminate 75% of settlements paid and move these very real costs onto the balance sheet of the company. It appears Bank of America is actually lying about the profitability of its companies because they have simply moved legal issues off the books. So its a compliance issue too. Moving litigation to a seperate Expense report in the Annual report represents fraud.

So we think we would take

30K lawsuits and eliminate 75% of them with an average settlement of 100K dollars. So the new real model looks like this:

30K lawsuits X .75 = 22500 eliminated in the branch with an average settlement of 100K. This is a 2.25B expense.

Now we apply the new model to the rest.

7500 lawsuits go to outside counsel instead of 30K.

75% of 7500 at 30K dollars to a major law firm/s
25% of 7500 at 660K dollars to trial law firms based on the issues plead at pre-trial. (IE the company might switch trial counsel after pre-trial/preliminary hearings) to regional firms, and or local firms
who know their courts better.

The grand total for this model is:

75% -> 225M dollars
25% -> 1.3B dollars.

So the grand total for Bank of America would be 2.25 in branch settlements, 225M for short settings, and 1.3B for trial settings.

This is 3.775B or a 6B annual change with the process change. In other words Mr. Steele's and Mr. Lynch's process lost the company 6B dollars in in-efficiency. which is a 60B market impact or $6.00 per share. It also puts Bank of America solidly in #2, and within 5% of Chase on that one issue.