Bank Of America May Buy Countrywide

Marketwatch says that Bank of America is in “advanced” talks to acquire Countrywide. No word on if said talks took place on Vader’s Star Destoyer or on Captain Hook’s pirate ship. Bank of America already bailed out Countrywide last year, chucking $2 billion into the troubled mortgage lender in exchange for preferred securities that could be converted into stock at $18. Countrywide is currently trading at around $7.75.

For Bank of America, an acquisition would be risky, but could generate big gains if the mortgage market were to stabilize, analysts said.
The bank is a leader in retail deposits and is also a big commercial lender and credit card issuer, but it hasn’t expanded as much in mortgages.
“The real question is whether Bank of America is comfortable enough with credit quality of Countrywide’s assets,” said Kathleen Shanley, an analyst at Gimme Credit.
“The potential payoff if things improve is very big for Bank of America,” she added in an interview. “Countrywide is the largest mortgage franchise in the country, and it’s a huge servicer. But we don’t know how long the mortgage downturn will last and how bad the mortgage losses will ultimately be.”
Countrywide has been hit hard by surging home-loan delinquencies and foreclosures. The shares have slumped almost 90% in the past year, and earlier this week the company was forced to deny market speculation that it was close to filing for bankruptcy.

Bank of America in talks to buy Countrywide: report [MarketWatch]

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  1. alice_bunnie says:

    Yes, because Bank of America isn’t big enough already. Pretty soon it will literally be “Bank of America”. :/

  2. JustAGuy2 says:

    @alice_bunnie:

    Nah, they’ll eventually just rebrand as “Bank.” WalMart will call itself “Store,” and we’ll be all set.

  3. alice_bunnie says:

    LOL! We won’t have any worries anymore!

  4. laserjobs says:

    There is either something going on behind the scenes with the Fed and Treasury or BAC wants to get back some of that money the wasted on CFC by pumping and dumping the stock. There would be no reason BAC would even consider buying CFC before they go bankrupt since the would have first pick though since they own the majority of senior notes.

  5. Sherryness says:

    I could be wrong, but didn’t Bank of America recently have big problems with its mortgage division? Downsizing or getting rid of it entirely? I guess they want to try, try again???

  6. Bay State Darren says:

    @alice_bunnie: and JustAGuy2: And this country will become the United States of Bank of America.

  7. comopuedeser says:

    Awesome! I love the fact that they are getting bigger. That means more branches and consolidation. This has its downside but there will be some advantages I hope.

  8. robotprom says:

    soon there’ll be more BoAs than Walgreens and Wal-Marts combined.

    Wal-Bank maybe?

  9. doogal says:

    My big speculation is that it has to do with CDSs (credit default swaps). CDSs are a core type of “toxic waste” that threaten the solvency (not just the liquidity) of many large banks. Countrywide likely has a lot of CDSs, and BoA may be the counterparty on many of those swaps. If BoA buys Countrywide, then both sides of the swap are owned by both sides, and billions of dollars in debt suddenly vanish.

    If this is the case, expect lots more of these “mergers,” creating deflationary pressure on credit, consolidation and mergers in banking, and permanently burying many of these toxic, bank-busting off-the-books CDS style transactions (trillions there) in merged entities so that they never see the light of day.

  10. ageshin says:

    anti trust laws? May Teddy Roosevelt’s spirit rise up and smite them all.

  11. mrspaz says:

    @Bay State Darren: The United States of Bank of America, brought to you by Carl’s Jr.

  12. Michael Belisle says:

    @Sherryness: It’s like this:

    Your friend Countrywide Smith loaned $10 to Subprime Homeowner Anderson, using his Barry Manilow CD as collateral. Countrywide is publicly traded. The market’s pretty pissed about Countrywide messing with the economy, so you can buy him with all his assets and liabilities for 20¢ on the dollar (recently 32¢ because speculators heard you are interested).

    You hope that Subprime Homeowner pays the bills on time. But if not, which is likely, you’ll get the Barry Manilow CD and auction it off on eBay for about $5.

  13. crazyflanger says:

    I’d buy a Barry Manilow CD for $5. Then it is time to invite the ladies over for a sexy party.

  14. mac-phisto says:

    meg, that’s a SUPER star destroyer – the executor, to be exact. qutie fitting, isn’t it?

  15. darkened says:

    Hmm this makes me want to buy CW stock

  16. NoWin says:

    @Sherryness: Over the past few years (probably by acqusition via the old Fleet Bank), BofA, and has bought smaller mortgage companies all across the US.

    Some of these mortgage divisions obviously had a “less-stellar” performing track record, but paper is paper, and they bought it just to gain, if anything, a larger market share.

  17. HRHKingFriday says:

    @doogal: Oh, sneaky! THat reminds me of when I owed him money from the lemonade stand (he paid for the lemonade). Finally he just stepped in and started taking all the money.

    Sigh.

  18. econobiker says:

    9:34am est the deal is announced,

    The BOAlien and CWPredatoryLender are joining to suck the American public dry…

  19. internal says:

    UPDATE:
    This deal is now confirmed by BoA:
    [news.yahoo.com]

  20. Wormfather says:

    @ageshin: Anti-trust is BS…besides, this isnt even a valid anti-trust issue. BoA is diversifying, they had minimum exposure in the sub-prime meltdown, so now they are in a good position to scoop up the walking wounded, good for them.

    Besides, if under this theory BoA is antitrust then what the heck is GE?

  21. Chairman-Meow says:

    @doogal: You hit it right on the head doogal. This is more about jiggling the books than “saving” Countrywide.

  22. mac-phisto says:

    @darkened: might want to rethink that…cw is selling at a discount. you get one share of BAC for every 5 1/2 shares of CFC. at current trade, that equates to a meager profit of 30 cents/share (assuming BAC stock doesn’t tank after the merger).

    considering CFC was trading around $40 only a year ago, there’s gonna be a lot of investors losing their shirts on this deal.

  23. myrall says:

    @mrspaz: Thank you Idiocracy…truly one of the greats!

  24. barty says:

    Watch anyone with a Countrywide loan have their mortgage magically go up an extra $5-10 a month once BoA’s fee department gets involved.

    We probably need to refinance this house anyway…

  25. Meg Marco says:

    @mac-phisto: I know. =)

  26. mac-phisto says:

    @Meg Marco: you’re so clever.

  27. shadow735 says:

    Band of America has been in talks with countrywide for the last year or so, the fact that CW stock has tanked has made it so they are in a even better position to do so, which has been announced as of today. Still its not final the fed still needs to aproove the merger. bofa is buying CW just for the main fact of the big piece of pie and distribution for mortgage loans. CW is a great company that got caught up in the sub prime demon and lax lending and Underwiting practices.
    Call it predetory Borrowing, all those people using thier homes as an ATM, taking out all the equity to get the cool new toys, boat, rv’s vacations. And stupid people that sign a paper without reading and understanding whats prinited on it so they get a house out of thier means because they dont want to be told they cant.
    And yes there are bad apples (brokers and such) that worked unethically and as a predator.

  28. @comopuedeser: Whatever you’re high on, can I have some?

  29. How in Luke Skywalker’s Name is this NOT a monopoly issue??

  30. CumaeanSibyl says:

    @mac-phisto: Yes, but there’s some discussion as to whether “Super Star Destroyer” is a legitimate class designation, since that’s something the Rebels came up with. Vader’s command ship would be more properly termed a Star Dreadnought, but Meg was probably better off going with the best-known term.

    Incidentally, they should hire both of us to write over at io9, where the current writers can’t tell the difference between a probe droid and a torture droid.