Monday, May 19, 2008

Bank of America - CountryWide Update

I am more convinced than ever that Bank of America's prime motivation in taking over CountryWide was and is to avoid the huge write-offs that would be required if they allowed it to continue into bankruptcy. The cost of this maneuver, however, continues to rise. Last Friday a federal judge ruled that CountryWide, its officers and directors must deal with shareholder lawsuits claiming fraud. Also, the FBI is continuing its criminal investigation of CountryWide (and other lenders). In the face of these rising legal costs added to the mounting credit losses, it is becoming apparent that Bank of America's too clever by a half effort to bail itself out of a lousy investment is becoming intolerably expensive. I am looking for a possible announcement this Friday before the long holiday weekend. That seems to be the popular time to release unpopular information.

By the way.... I ran across an analyst's report of last August touting Bank of America's $2bb investment in CountryWide. He said 'this is no fly-by-night lender, it is THE preeminent mortgage lender in the nation'. Wow... wonder how much money this brain surgeon makes.

1 comment:

Darren said...

You wrote:

"I am surprised it took the FDIC so long to offer this advise (warning really). This is also after an extended absence from banking I have decided to return specifically to help manage problem loan portfolios."

It seems that everyone, FDIC and big lenders included, is a bit slow to respond to what is happening. It's almost as if there's a sense of denial about how big the problems are going to be. The lenders have been unwilling to work with us on several of our short sales, even when we've provided them with ample evidence that the properties are not worth what their BPOs suggest.

What do you think needs to be done to solve the problems we're seeing today?