Bankruptcy

In a Stunning Move, BoA Buys Countrywide

By J. Michael McBride

Yesterday, the talk was that Countrywide would file for chapter 11; today Bank of America inks a deal to buy the troubled lender. Recall that BoA had invested 2 billion in Countrywide about 5 months ago and, perhaps to salvage that investment or to make the powers that be happy by not allowing Countrywide to go into bankruptcy perhaps triggering an even larger "crunch," it now announces that it is buying the company for 4 billion. Arguably, but for that investment which would likely have been written off in a bankruptcy, BoA should have allowed Countrywide to file and then bought "clean" assets out of the bankruptcy estate. It would have been much cheaper, but the bank's initial investment would have likely been totally lost and written off on the bank's books.

Quote:
"'`I hope Bank of America isn't throwing good money after bad,' said Eric Schopf, a fund manager at Baltimore-based Hardesty Capital Management LLC, which owns 216,000 Bank of America shares, in a Bloomberg TV interview. `They struck a deal that wasn't very attractive. Hopefully they can get it right the second time around.'
Bank of America Chief Executive Officer Ken Lewis is doubling down on the U.S. mortgage market as the housing slump enters its third year, the worst streak since 1982. The takeover of Calabasas, California-based Countrywide increases Bank of America's dependence on the slowing domestic economy, where it gets more than 85 percent of its revenue.

Countrywide, the largest independent U.S. mortgage company, gives Bank of America about 9 million borrowers and fees from servicing $1.5 trillion of mortgages. Countrywide's market value plummeted 82 percent to $4.5 billion during the past 12 months as the lender reported its first quarterly loss in 25 years."

Here is a link to the full article: http://www.bloomberg.com/apps/news?pid=20601087&sid=aqKE9kRcKDEw&refer=worldwide

Michael

Full post as published by Texas Lawyer Blog on January 11, 2008 (boomark / email).