Bank of America bets heavily on Countrywide.
Countrywide has slid steadily toward the toilet over the past few months, notwithstanding the $2 billion infusion Bank of America gave it a few months back. Now BofA chief Ken Lewis is doubling down on his Countrywide bet — “doubling down” is the metaphor I’ve seen everywhere in the news stories on the deal — and the big (monster, ginormous) question remains:
Will the healthy part of Countrywide’s mortgage-servicing business — which Bank of America is buying at a steep discount — outweigh the gigantic subprime mortgage liabilities on its balance sheet?
My guess: no. But BofA will still come out more or less okay, since it’s frikkin’ huge and can absorb the hit.
But that doesn’t mean that Lewis was right to double down on a bad bet.
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For more, see this article (and video) from Mark DeCambre of TheStreet.com:
Our previous coverage on Countrywide:
- Mortgage problems are Countrywide.
- Countrywide prompts a heretical thought about CEO compensation.
- An appeal to Countrywide insiders: care to weigh in?
- Angelo Mozilo’s stock sales seem craven, but are they improper?
- Countrywide’s conniving ways?
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Countrywide is losing money now, but it originated $408 billion in new mortgages last year. And despite all the bellyaching about the subprime mortgage crisis, try to think about it from a fatcat banker’s perspective. Bank of America just can’t wait to get its hands on the 93% of Countrywide’s mortgage portfolio that is still being paid on time.
anon: You make an excellent point, and indeed that has to be the logic behind Ken Lewis’s move: get that big, fat portfolio of well-paying mortgages, and get it at a substantial discount.
It still leaves open for question: just HOW big and HOW bad the liabilities will be from the small minority of mortgages that have blown up. The success of this deal is going to hinge on return on investment, and those bad mortgages — and anything else that might hiding in Countrywide’s cupboards — are going to exert inordinate influence on the ROI formula.
The worry from Wall Street: that this is really good money after bad, trying to make something out of the $2 billion investment that BofA made a few months ago — an investment which is now worth about a quarter on the dollar.