Angelo's exit: Will Countrywide's Mozilo stay?

Questions, questions and more questions for Bank of America if it does in fact buy Countrywide Financial:

-- Does Countrywide CEO Angelo Mozilo (pictured) stay on in a substantive role?  Exit gracefully? Exit in another manner entirely?
-- Does Countrywide remain headquartered in Calabasas?
-- Are further Countrywide job cuts inevitable?  The company has already slashed 10,900 jobs, and has a payroll of 50,000 employees.
-- How does Bank of America explain to its shareholders -- or does it even bother -- what happened to the $2 billion it has already invested in Countrywide?
-- Will Countrywide banks continue to pay industry-leading yields on CDs?
-- Will Bank of America handle defaults and foreclosures any different than Countrywide would?
-- Is it remotely possible Bank of America has a fundamentally different strategy for dealing with the housing slump, particularly with borrowers who can't pay their mortgages?
-- Will Bank of American handle investigations and lawsuits any different than Countrywide would?
-- What about houses that Countrywide already owns through foreclosure -- will Bank of America have a different strategy for unloading them?

Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com
Photo credit: L.A. Times

Comments

[mad_as_hell]

the first question that came to my mind was "If BOA moves all operations East, will the homes prices plummet in the West Valley?"

[Victor the Predictor]

Ok peoples. First, unsourced rumours start to fly about CW's impending bankruptcy. Then "Egan-Watchamahoo" is quoted in a press release saying essentially the same thing. Then Fox news trumpets the Weiss "analysis." Then Wall Street Journal scoops everyone and says the following: "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."

Notice the "two people"? Again, whether or not Bofa actually ends up buying the CW bones, there is some heavy manipulation going on here. Right Rupert Murdoch, owner of both Fox News and his recent coup, the Wall Street Journal? William Randolph Hearst would be proud! Unabashed journo-profits from market manipulation. Can't wait for the next round of Fox-Wall Street Journal goodies.

[Cal]

"Does Countrywide CEO Angelo Mozilo (pictured) stay on in a substantive role? "

No chance, he tried retiring once already, he wants to badly. He had to stay on because of the implosion.

"Does Countrywide remain headquartered in Calabasas?"

No chance.. there is no need for 2 large HQ's much of whats in Calabasas out through Ventura County will (imho) get consolidated to Charlotte.

"Are further Countrywide job cuts inevitable?"

Yes.

"Is it remotely possible Bank of America has a fundamentally different strategy for dealing with the housing slump"

They will probably be better at separating the borrowers who are in trouble versus those simply cant afford their homes. They have the money to front the reunderwriting of the loans and then charge it to the bond holder.

"What about houses that Countrywide already owns through foreclosure -- will Bank of America have a different strategy for unloading them"

I bet not. They might get on the market quicker (because BofA has the money to expand its asset managers) but the strategy is basically the same across all servicers.

[TakeFive]

Who could explain it better than The Clash:

Darling you gotta let me know
Should I stay or should I go?
If you say that you are mine
I'll be here 'til the end of time
So you got to let know
Should I stay or should I go?

Always tease tease tease
You're happy when I'm on my knees
One day is fine, next is black
So if you want me off your back
Well come on and let me know
Should I Stay or should I go?

Should I stay or should I go now?
Should I stay or should I go now?
If I go there will be trouble
An' if I stay it will be double
So come on and let me know

This indecision's bugging me
If you don't want me, set me free
Exactly who'm I'm supposed to be
Don't you know which clothes even fit me?
Come on and let me know
Should I cool it or should I blow?

Should I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
So you gotta let me know
Should I stay or should I go?

[Becky]

Folks, how about an informal poll? Is Mozilo going to "pursue other opportunities" or will he "spend more time with his family"?

[Victor the Predictor]

Becky,

When asked by Maria Bartiromo in what might have been his last interview why he needs so much money, his reply was that he has a very large family. He has kids, and his kids have kids, etc. All that is very expensive. Angelo and family. Yep.

[sfvrealestate]

I agree with Cal (for a change). And I'll add this: the banks have been wanting a much bigger piece of the real estate pie for many years now. They've tried everything to get it, too. Think of how much actual real estate BofA will own if they buy CW and its assets, uh, I mean holdings. Their stock may lose in the short run, but in the long run it'll be very positive.

[butterflysoup]

Today I was about to buy an online 4 month CD at 4.9 percent at BofA, but now I'm reconsidering upon this news. I'm beginning to think the whole banking system may go down. The Feds will turn on their zerox machines to print more bills, and FDIC will kick in eventually, but how long will it take to get money out of banks, and what will the dollars be worth when one does get it out? This BofA thing is creepy -- could the country's largest bank be at risk?

[Joseph...]

You reap what you sow...

I lived in Simi Valley for about 7 years. I have never met an employee that was happy with countrywide. They treated people like cattle...(Excuse the expression).

Mr. Mozillo is reaping his seeds of Injustice...

[JamesW]

Joseph,

I've lived in Simi Valley when I worked for Countrywide.

Loan Servicing, which is based in Simi Valley, is the absolute worst division to work for. Remember that servicing needs a large uneducated workforce and that was Simi back in the 90s.

Most of the other divisions based in other nearby locations like TO and Calabasas are paid much better.

[Hugh McColl]

I certainly hope this does not go down, since no one will be better off except Mozillo. BofA shareholders will see earnings diluted again, and CFC shareholders may see only a modest increase in their investement. CFC employees and BofA employees will most certainly have to deal with layoffs (since this is where merger synergies / cost-savings come from). Given the significant infrastructure and legacy systems already in place on the BofA side, most of these would probably come on the Countrywide side.

IF this does go down (no guarantees with any of this):

BofA will surely move / consolidate almost all back-office functions to lower-cost areas. It simply does not make sense to pay folks in cost centers (non revenue-producing functions) twice what those jobs pay in lower cost locations. BofA is not interested in maintaining the home prices in the Westlake Village or Calabasas areas by keeping overpaid executives there. Countrywide executives will be forced to compete for their jobs once they are relocated. Considering that they will be competing against actual bankers, and not sales people, I doubt that many of them will be in leadership roles within BofA.

If you think about it (from the standpoint of a BofA shareholder):
All finance and risk management jobs will be moved to Charlotte where those functions already reside. Loan servicing and fulfillment will probably move to the least expensive call-center possible. All IT functions will move to Charlotte. All securitization jobs will either move to Charlotte or New York based on role. All front-line sales jobs will stay at their customer-facing locations to minimize impact to the customer.

The cultures of the two companies couldn't be more different. At BofA, there are actual bankers who work there... folks who could tell you the difference between LiBOR and Fed Funds Overnight Rate (think Gordon Gekko in Wall Street). At Countrywide, it's a sales culture driven by volume, not profit. True bankers are very few and far between. (think Alec Baldwin in Glengarry Glen Ross).

IT infrastructure at Countrywide is laughable, being at least 10 years behind the rest of the industry. This is the result of the sales-driven approach. Any investment to manage the business (i.e., maximize profit) is seen as unecessary, but any initative to increase sales numbers, is encouraged.

If I was a CFC shareholder, I would be very upset about the tanking stock, and the fact that Mozillo is still in the picture. The only upside is that he may end up salvaging what's left of their investment by duping Ken Lewis into buying the "Countrywide name". The fact of the matter is that the board is a bunch of yes-men who willingly allow him to do as he pleases (since he is the CEO and chairman). Mozillo sells large quantities of stock at opportune times (given his access to inside information), and then challenges the government, Freddie Mac and Fannie Mae to bail out the firm when the stock tanks. His comments would be more understandable if he would have been managing the company more closely, instead of allowing it to offer products that were ticking bombs (Option ARMs), and keeping them on the books since no one else would buy them. (How many are negatively amortizing???).

BofA does not need to make this move, (unless you call trying to double down to win back your losses a smart move) and Countrywide can become a force again (if they can get a competent leader in place). Hopefully, any due dilligence will reveal the skeletons in the closet with this deal.

[Cal]

"Remember that servicing needs a large uneducated workforce and that was Simi back in the 90s."

I live in Simi, I hope you aren't suggesting we are an educated work force now.

[Dharma]

As a former employee and one who has met Mr. Mazillo, his ego would never allow him to be second fiddle to anyone. No, he would go with all of his money safely put away. As usual, the employees would suffer the consequences of his actions.

[upthecreek]

Sounds like we will be seeing B of A real estate For Sale signs in many neighborhoods...VERY SOON

[tim]

I work at and respect Countrywide. They are a hardworking, ethical and concerned company. A merger with Bof A will create the dominate lending machine in the US

[Joseph...]

Tim,

You living in Lilly land!

Ethical and concerned company!!!! Give me a break!

That might have been 17 years ago...When their sales people were "Salaried Employees"...After becoming commissioned, they became worse than loan sharks...I know the business...

[Disgusted]

>I work at and respect Countrywide. They are a hardworking, ethical and concerned company.

Tim, with all due respect, what color are the skies on your planet?

I am certain that most of Countrywide's *employees* are indeed hardworking and ethical. In fact, as a refugee from the mortgage industry, I know some of them personally. Of the ones I know, most are deserving of respect; they simply wish to do an honest day's work in exchange for an honest day's pay.

However, the problem is not the employees. The problem is management, who led them into this mess and now resemble rats on a sinking ship. Many of these executives - especially Mozilo - are neither ethical nor deserving of our respect. Nor are they "concerned"; at least not about their employees. If they were, they would not have laid off 20% of their workforce while continuing to draw their own obscene salaries.

Other posts on this blog state that Mozilo's severance package may be $110 million, and that he claims he needs that much because his children and grandchildren are expensive. News flash: the average household in the Los Angeles area would need nearly TWO THOUSAND YEARS to earn that much. And yes, that includes households with children and grandchildren.

Yes, all persons (executives included) have the right to be fairly compensated for their labor. There's fair, and then there's fair. Which do you think this is? Hint: the SEC is already asking that same question.

[Tombstone Realty]

I'm not too up to date on the current regulations for bank mergers anymore - but I know when banks merge they are usually required to close 'x' number of offices in order to ensure there is 'market balance' in the industry. Least that's how I saw BoA grow to the Monster it is now.

How would combining the USA's largest banking group, with it's largest mortgage lending group go down with the regulators? Seriously - one massive banking company, in charge of some ungodly percentage of consumer debt? They'd have credit cards, smaller loans like autos, and now this whopping big pile of upside down poo-pancake.

How much of America would these guys end up owning firstborns from??

[Uncle Billy]

Lefty, get out of tim's body.

Seriously though, do you think that most of senior mgmt and the board give two hoots that you've been loyal and hard working (actually you didn't say you were, you said "they" are). They loved that. They made pots of money for those reasons. No one that I've heard of -- at least on this blog -- has ever questioned much the ethics of the folks that actually made the sausage there.

[Chris]

Tombstone...the merger won't have too many problems with regulators. The stipulations set forth on banks is that they cannot maintain a certain percentage of the country's deposits. BofA is already straddling that line and cannot take over many other banks (at least no more blockbuster deals). However, Countrywide is a lender and they are two mutually exclusive items. BofA, in terms of home lending, I believe is somewhere in the bottom half of the top 5. An acquisation of CW will bolster (in theory) BofA's home lending side and provide a means for growth outside the traditional bank services. However, given the dismal state of affairs the CW is in....I just can't see how this can be a good investment for BofA. I think its a gamble that can reap huge dividends for them or cost them dearly. I think they are a little cavalier with their shareholders money.

[Tombstone Realty]

Danke for the explanation...

If I remember correctly, BoA had to get some injection of funding for it's own problems. I agree that taking on someone else's problems probably isn't the smartest thing they can do - unless they *really* think the government is going to step in and 'help' the American Homeowner...

[JJ]

The comment about Countrywide IT infrastructure behind the rest of the industry by 10 years is a bit false. Did the person who made this statement work for Countrywide before? Has that person actually seen the infrastructure? I would have to disagree with him because there is some real great technology, infrastucture and bright minds in place running the environment. Techology and infrastructure is the reason Countrywide grew the way it did the last 15 to 17 years. When I started working for this company the loan servicing portfolio was 2 billion, it is currently at 1.4 trillion. So much for behind 10 years. The last I looked the infrastructure and technology was pretty darned state of the art. If it gets taken over by BofA, fine... But don't knock on the infrastructure because you it is pretty evident that you don't know much about it.

[Diego]

If Mr. Mozilo had 110 children and grandchildren he could leave each of them $1M when he goes to that big tanning booth in the sky.

I wish I had a rich relative that would bequeath me one million. I'd use it to buy Lefty's house.

[Hugh McColl]

Actually JJ, your comment only reinforces my point about CFC culture, since you are pointing to market share, rather than profitability. If you think this doesn't make sense... would you rather be GM (selling millions of cars to Avis and Hertz) or Porsche (which makes more profit per vehicle than any other manufacturer)? For shareholders, a larger loan portfolio does not necessarily equal higher profitability.

While there may be some good folks working within the IT groups, the management is clearly the problem.

The SMART and ET groups are going sideways at best. Their leadership is more concerned with growing the size of their staff (and therefore the budgets under their control) than delivering a good product to their business partners. Considering that the belt tightening occured about a year ago, someone must have decided this gambit was too obvious, and merged these groups back together again to avoid being outsourced.

How do you explain paying 10 times industry standard cost for a General Ledger system? And then implementing it so poorly, it did not lead to the sun-setting of the legacy system? An HP 12C would do a better job than the way it was configured.

How do you explain the fact that they don't even have an automated tool that allows management to see what their budgets are? This project has been going on for several years, and only accounts for a small fraction of the business units in operation.

In fact, when I was there, they were actually using software like FoxPro (which hasn't been in production since the early 90s) as the basis of the origination system. Why is there not a migration plan for that tool? Have they never heard of Business Continuity Planning or Disaster Recovery? It's usually a good idea to move off a platform when the manufacturer decides that the product is defunct.

How do you explain the fact that no one within SMART or ET can explain to you what the system of record is for each type of data? If you know a person that can, I would be impressed, since after countless meetings in a 3 year span, none of their leadership could identify that person.

If you are telling me that the infrastructure is state of the art, you have clearly never worked at a major bank. IT should provide a tangible benefit to the profit centers that fund them. It should not become a black hole that devours all resouces (capital and staff) in its path, to provide basic services to the operation. At CFC, enterprise platforms are almost non-existent, and the idea of a service level agreement is nowhere to be found. Most organizations want their IT groups to provide at least the same level of support they could get if they outsourced the function. Otherwise, why would they decide to spend capital to build it internally?

I am able to say that they are lagging within the industry, since I worked on several projects at CFC over the last 3 years and at at 6 of the top ten banks in the US within the last 10 years. I have seen what their peers and even their customers (Fannie Mae and Freddie Mac) are working with. JJ, if you had a greater knowledge of the industry beyond just CFC, you would know what I'm saying is true.

It is such a farce for them (in the Annual Report) to say that technology is an advantage. Perhaps it is at a place like Google, where they are developing products the competition does not have. But at CFC, they are re-active at best. Their peers are far ahead of them, with products like predictive analytics for their branches and common customer keys to identify and track the relationship (products owned, household membership) with the customer!

If you dispute any of these points as not accurate, just wait until your new managers (the BofA team) shows off their toys. I'll make a bet with you that almost no CFC legacy systems or IT practices survive integration. This will be due to the simple fact that it makes sense for them to bring CFC infrastructure up to BofA IT standards, rather than re-platforming the entire BofA organization to the "state of the art" systems and counter-productive IT practices at CFC.

[Hula Girl]

Butterflysoup says: This BofA thing is creepy -- could the country's largest bank be at risk?

Good question - especially since I bought that very CD.

What exactly does FDIC insured mean to a customer holding B of A accounts?

Is FDIC insured like "break glass in case of emergency" ?

Will the Fed really pay up on the millions of dollars invested by account holders should this major institution tank?

I know I sound like a paranoid Chicken Little, but I understand the fallout from the Depression and don't want to be the Last Account Holder Standing.

Will somebody please explain before Ann jumps in to call me ignorant.

[banker4life]

FDIC insured means that the Federal Deposit Insurance Corporation guarantees your account's value (up to $100,000) back to you, should the financial institution become insolvent.

So, if you had $1 million, it would make sense to break it into 10 accounts rather than having it in a single account. This would allow you to have the maximum amount of FDIC coverage for your assets.

There is a bigger thing to keep in mind. The Federal Reserve system is put in place to ensure that the financial system does not collapse (like in 1929). BofA. There is also a belief that certain institutions are "too big to fail". This is defintely any bank in the top 10. The Federal Reserve would prop these institutions up should they become in danger of being insolvent, in order to keep the massive amount of money (within the institution) from being taken out of the monetary supply.

[Cal]

I read the CC transcript this morning, Mozilo is leaving (if) after the deal closes in the Q3