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Bofa in Talks to Buy Countrywide

deejayohdeejayoh
edited January 2008 in The Economy
from the WSJ
Bank of America Corp. is in advanced talks to acquire struggling Countrywide Financial Corp., according to people familiar with the situation.

It isn't clear how quickly a deal might be struck, but two people familiar with the matter said it could occur very soon. It also is possible that an agreement could be delayed or fall apart altogether.

The market value of Countrywide has plunged to about $3 billion, which represents about two months' profit for Bank of America. The Charlotte, N.C., bank paid ...

Not so sure if this is a purchase or a put. IIRC the speculation when they made the $2B investment a few months back was that they basically had the right to take their pick of assets if CFC failed. If they're truly on the brink of failure then do they really have a choice?

CFC market cap today is only $4.5B

Comments

  • TJ_98370TJ_98370
    .
    Regulators Would OK Countrywide Buyout

    A buyout of hobbled mortgage lender Countrywide Financial likely would be approved by regulators, analysts say, because otherwise the company could file for bankruptcy, further disrupting the market for home loans.

    Bank of America Corp. is in talks to acquire Countrywide, The Wall Street Journal and The New York Times reported Thursday online, citing unidentified people familiar with the deal. The transaction would put the country's largest mortgage lender, which has experienced a surge in home-loan defaults and has seen its share price plummet, in the hands of the largest U.S. bank by market capitalization.

    A Bank of America-led buyout is "the one and only hope that (Countrywide) has" to avoid bankruptcy, according to Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co. Egan-Jones warned earlier this week that Countrywide could "falter" unless it receives an infusion of $4 billion in capital within the next two weeks.

    "I cannot imagine that the regulators want Countrywide to go under," said Bert Ely, a banking industry consultant in Alexandria, Va. "I think they're actually quite nervous about that."......
    .
  • casey1167casey1167
    Could some one, in an unbias way, tell me what BAC has to gain in this transaction? Realistically, what do they have to gain they could not buy for themselves without taking on the unknowns inherant to CFC?
  • TJ_98370TJ_98370
    casey-

    I've been wondering the same thing (what's in it for BoA?)

    Some sources say that Countrywide's "loan servicing" business is valuable as an apparent stand alone.
  • deejayohdeejayoh
    interesting reading from Herb Greenberg

    Updated: The Real Story on Countrywide...
    We'll know it soon enough, but with the leak that Bank of America is near acquiring Countrywide, several things would appear apparent (at least while we're playing the guessing game):

    1. The Fed is behind the deal.
    2. The Fed is behind the deal because the rumors yesterday of a near bankruptcy were probably true.
    3. As part of the deal, the government likely agrees to guarantee BofA against Countrywide-related losses.
    4. Lost in the in the noise yesterday was that Moody's downgraded the ratings on 30 (count 'em — THIRTY!) tranches of Countrywide's mortgage debt by more than a few notches. They did something similar before American Home Mortgage filed for bankruptcy.
    5. Investors bid the stock higher assuming a premium when it's likely that BofA still needs to fully assess the value of the assets before the deal's full value will be known.
    6. Big question, of course, is what Countrywide investors will get.
    7. Rule of thumb with bankruptcies: Stocks often double on their way to zero.
    8. BofA gets a free bank and a put to the government.
  • SunTzuSunTzu
    Big real estate bubble bursts.

    Government addresses bad assets by forcing good banks to acquire bad banks.

    Sounds reasonable. How'd that work for Japan?

    Ironic. The FED avoided at all costs to burst any sort of financial bubble because it didn't want to make the same mistake Japan made, looks like it's path independent.
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