Bank of America Corp. agreed to a $2.43 billion settlement with investors who suffered losses during its acquisition of Merrill Lynch & Co., resolving one of the biggest legal battles to stem from the takeover.

The bank will incur a $1.6 billion litigation expense in the third-quarter, the Charlotte, North Carolina-based company said today in a statement. The firm may post a loss for the period after it said earnings also will be cut by $1.9 billion in pretax valuation adjustments related to credit spreads and a previously disclosed $800 million expense tied to U.K. taxes.

Bank of America has faced regulatory probes, investor lawsuits and criticism from lawmakers after buying Merrill in January 2009 for $18.5 billion without warning shareholders about spiraling losses at the brokerage before they voted to approve the deal. Under today's settlement, Bank of America promised to overhaul corporate-governance policies.

"Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders," Chief Executive Officer Brian T. Moynihan, 52, said in the statement. "As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients."

Bank of America slipped 0.8 percent to $8.90 at 10:14 a.m. in New York. The bank advanced 61 percent this year through yesterday, the biggest gain in the Dow Jones Industrial Average. The litigation costs, valuation adjustments and tax charges will cut about 28 cents from the quarter's earnings per share, the company estimated.

Unexpectedly Large

"This settlement is far larger than we expected given the weak merits of such suits and historical precedence," David Trone, a JMP Securities LLC analyst, wrote in a note to clients. "Bank of America is attempting to rebuild its capital base, and these hits will essentially erase the past six months of progress."

The company will probably have a per-share loss of about 17 cents in the quarter, Trone estimated.

Shareholders sued in 2009 claiming Bank of America failed to disclose information about bonuses to Merrill employees and about the firm's financial losses in the fourth quarter of 2008.

The bank took its first $15 billion bailout by taxpayers in 2008 as Merrill took $10 billion. A second round of $20 billion came in January 2009 after Merrill's losses in its final quarter as an independent firm surpassed $15 billion, raising doubts about the lender's stability if the takeover proceeded.

'Crazy Price'

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), has criticized former Bank of America CEO Kenneth D. Lewis for the Merrill acquisition, telling the Financial Crisis Inquiry Commission that Lewis paid a "crazy price." Lewis, 65, struck the deal the same day that Lehman Brothers Holdings Inc. filed for bankruptcy in 2008.

"He could have bought them the next day for nothing because Merrill was going to go when Lehman went," Buffett told the commission in remarks released in February 2011.

Lewis, who as CEO spent more than $130 billion on takeovers, clashed with regulators including the Federal Reserve and then-Treasury SecretaryHank Paulson by trying to back out of the Merrill takeover. Lewis went ahead with the deal under pressure, only to be stripped of his chairman's title later in 2009 amid a shareholder revolt. That September, he announced plans to step down by year's end without a successor in place.

Legal 'Woodpile'

In August of last year, Omaha, Nebraska-based Berkshire agreed to invest $5 billion in Bank of America in return for preferred stock paying a 6 percent dividend and warrants to buy 700 million shares of the lender at $7.14 each.

"I just wish I'd done it for $10 billion," Buffett told Bloomberg Television's Betty Liu in July. Moynihan has been doing "exactly what I would be doing" to help the bank recover from mistakes made before his tenure.

"They're continuing to chop through the woodpile of the legacy issues from the credit crisis," saidDavid Hendler, an analyst at financial research firm CreditSights Inc. in New York. The Merrill takeover "was a strange brew of fundamental strategic desires caught up in the maelstrom of a financial meltdown."

Class Action

A trial was set to start Oct. 22. U.S. District Judge P. Kevin Castel in Manhattan certified the case in February as a class action, or group complaint, on behalf of all investors investors who held Bank of America common stock and call options from Sept. 18, 2008 to Jan. 21, 2009. Castel also certified a class of investors who held common stock on Oct. 10, 2008 and were entitled to vote on the Merrill acquisition.

Moynihan has been working to resolve legal disputes tied to practices under Lewis. Moynihan last year hired Gary Lynch, the former head of enforcement at the U.S. Securities and Exchange Commission, to help resolve clashes including confrontations with investors who suffered losses investing in mortgage-backed securities.

Bank of America said today that it denies allegations in the lawsuit over Merrill.

The corporate-governance measures it will make or continue include shareholder votes on pay, policies for a board committee on acquisitions, disclosures of noncompliance with stock- ownership guidelines, majority voting in director elections and keeping the board's compensation committee independent. The settlement is subject to court approval.