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Bank of America financed controversial trades using US banking unit

BBR Staff Writer Published 12 February 2015

Bank of America has financed controversial trades using its banking subsidiary in the US, Bank of America National Association.

BOA tower

The company's strategy, which was followed during the last few years, is claimed to have helped hedge funds as well as other clients avoid paying taxes on stock dividends, reported The Wall Street Journal, citing the company's internal documents and people familiar with the matter.

In 2014, Bank of America quietly began putting an end to the controversial practice of using funds from its government-backed unit to finance transactions by its European investment-banking unit.

This practice, which received severe flak from the federal regulators, has now ended.

In a statement to Reuters, the bank said: "BANA (Bank of America National Association) no longer finances dividend arbitrage activity."

In 2011, senior officials from Bank of America investment-bank in London compelled their subordinates to implement the policy so as to take advantage of the lower funding costs that are enjoyed by Bank of America National Association, the Journal reported.

This policy was aimed at attracting hedge-fund clients to the bank's European investment-banking unit. Focus was also on clients who were engaged in the dividend-arbitrage tax trades.

Bank of America's existing employee submitted information pertaining to the role played by the US unit in financing the trades to the US Securities and Exchange Commission.

The London-based Merrill Lynch International unit of Bank of America is claimed to have extended "extreme levels of BANA leverage" to fund the trades, the employee's submissions alleged, reported The Wall Street Journal.

American multinational banking and financial services company Bank of America is headquartered in Charlotte, North Carolina.

Image: The Bank of America Tower in New York City. Photo: courtesy of User Jleon