Congressman to Mozilo: Donate your $$$

Good morning. Random angles and insights on this morning's "takeunder" of Countrywide by Bank of America. (Takeunder? That's when the buyer offers less than the stock price at the time of the deal. That's what B of A did, and that's why Countrywide shares are down a buck and change today.)

My favorite morning angle is Rep. Barney Frank's free financial advice to Countrywide CEO Angelo Mozilo: "I am calling on Angelo Mozilo, who will be profiting from this transaction personally, to donate a substantial portion of the $150 million he has collected over the last several years to nonprofits and other institutions that are helping us deal with the problem he helped create."

Links:

-- L.A. Times coverage of the deal itself, in which B of A is offering $7.16 per share for Countrywide.  The stock closed at $7.75 Thursday, hence, a takeunder.
-- Kathy Kristof lays out the $115-million severance package for Mozilo. Many of you are wondering if the package will cover country club dues. Yes, covered. Use of a corporate jet? Yes, covered. Try to think of something you might spend money on. Are you thinking of that thing? It's covered.

The Mozilo debate is one-sided, but for the purposes of this post I will make it two-sided:

JamesW wrote, "As a former employee I have no problem with this. Mozilo was not a hired gun, he was a co-founder of the company and spent countless hours of his useful years making riches for himself, employees and shareholders. He deserves all the money he can get."

Big Fella wrote, "Angelo Mozilo, the Ken Lay of 2008. The fat cats keep getting fatter and the rest of us pay for it, again and again and again."

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[sunsetbeachguy]

I think this is a dumb question but for a couple of hundred million can you fake your death, create a new identity and live your days quietly in some country without an extradition treaty with the US?

I bet the thought has crossed Mozillo's mind.

[Uncle Billy]

Fox takes the cake. Just saw a Countrywide ad advertising the "Combo" loan. Really nice guy invites us to roll all of our debt into one happy loan -- existing mortgage, credit cards, auto loan. Oooooooooooookeekokeeeee

[Tombstone Realty]

Oh hoh ho ho look at THIS little article on the buyout.

http://money.cnn.com/2008/01/11/news/
companies/sloan_countrywide.fortune/

Apparently, BoA will be able to use Countrywide's losses for their own write off purposes against their income.

From the article by Sloan:

"..So over the first five years, Bank of America can use a total of $1.35 billion of Countrywide's losses to shelter its income. (That's five years of $270 million annual losses.) If Countrywide's embedded losses when Bank of America buys it exceed $1.35 billion, Willens says, the bank will be able to deduct the rest of the losses, without limit, starting in the sixth year.

Isn't life fun?..."

Oh, a barrel of monkeys!

[kennyboy]

"for a couple of hundred million can you fake your death, create a new identity and live your days quietly in some country without an extradition treaty with the US?"

That's what Ken Lay did. I saw him in the Maldives a couple months ago. I predict Mozilo will be having a heart attack this year.

[1]

I guess holding the actual borrowers RESPONSIBLE for the loans they took is somehow excused? I don’t get the hate toward Mozillo.

I believe the truth about the unfolding mortgage debauckle is individuals and others sought to make a killing buying large numbers of homes and turning around and quickly resaling the exact same homes at 2x what they originally paid. That model of get-rich-quick scheme at other home buyer’s expense is coming apart.

The borrowers are 99.9% responsible for this entire affair. I do not believe there is such a thing as “predatory lending”, there is just individual greed and poor judgment. CW and others just made the money easy to borrow, nothing wrong with that from the borrowers end. Leave Mozilla alone, you’re jealous.

[larry]

Only $4B to buy the troubled Countrywide?
Bush can buy Countrywide 175 times if he didn't go in Iraq the wrong way.

[CD]

Thousand of workers will be laid off, what resources do they have? No golden parachute there. It will be like a domino effect trough California.
Meanwhile: food inflation, gas prices,higher taxes, health care.No help there...No golden parachute for the regular folks... We are going down big time....Mozilo has a house at the Vintage country club, in Indian Wells.The head of security for that joint is an ex CIA guy. Cameras everywhere, guards everywhere.....LETS STORM THE CASTLE!!!!

[Flaaash]

If the government took tax dollars and loaned them out to any dim-witted individual with an IQ of 60 and expects them to pay it back, then how could we not blame the government for making such an irrational decision. That's what this unrealistic lending standard had started. They were lending money to people who couldn't even manage their own checking account and you expect them to pay back a 500K loan? If you needed cash, wouldn't you take it if it was just hanging in front of you? The people that were smart and greedy are paying for it now with their foreclosed homes and bankrupcy filing, while Mozilo is cashing in. Does that make sense?

[KB]

Does it cover lifetime leather care for his skin?

[pb]

There is such a thing as "predatory lending." It happens when you send smooth-talking brokers to under-educated first-time home buyers, explain to them that the interest rate is "only 4%," that "they only need to pay a minimum each month" rather than the "recommended amount," and neglect to explain to them about how this will all blow up in their faces 4-10 years down the road. Borrowers were defrauded, plain and simple.

Add to that Countrywide's policy of not following its own underwriting guidelines in the search of a quick buck, and you have the makings of a meltdown.

The borrowers are not to blame for this; they were put into a position they did not understand, were not made to understand, and were blatantly lied to about. They were taken to the cleaners by people like Mozilo and many will now have their lives ruined. Add to that the fact that Mozilo LIED to everybody -- the regulators, the public, the shareholders -- about the financial health of his company for nearly a year while selling $100s of millions in stock, he deserves to be fleeced of every single cent he has made over the past 50 years.

[banker4life]

I think the anger directed toward Mozillo has nothing to do with the issue of culpability with the lender / borrower subprime mess, and everything to do with destruction of shareholder value.

If you are running a company, it is your fiduciary responsibility to its owners (the shareholders) to take the appropriate action to keep it a going concern. That includes keeping it out of bankruptcy, and keeping the company's credit rating high enough to allow it to operate with liquidity.

Why Mozillo consistently sold his own shares, and did not take action to protect the stock price IS the issue. So, he revised his own personal selling schedule to maximize his personal gain while the stock was at it's highest point, and did not exit unprofitabile businesses in time to protect the company. As the CEO and Chairman, it's his job as its steward to take care of the company balance sheet first and NOT his own. This reeks of an oncoming SEC investigation. Since he's an insider, it looks highly suspicious.

Let's face it, actions speak louder than words: How about re-purchasing some stock to prop up the price? Mozillo certainly could afford to after receiving the massive payday he did in 2006 and 2005. In fact, he could buy the same shares he sold for a fraction of the price! If he his "protecting his family's interest" as he claims, what about his shareholders' interest? Who is looking out for them?

[zuuumie]

Tax benefits for Bo A, while it's PARENT COMPANY, NATIONSBANK, both headquartered in Charlotte NC, is a CARIBBEAN CORPORATION, manufactures nothing, but does create Something-out-of-Nothing and
EVADES & AVOIDS any and all U.S. Federal INCOME TAX, and STATE TAXES as well.
Risk? Hardly.A fire sale benefit and advantage again as with the many institutions BofA took over after the S&L crisis.
Every scandal like the orchestrated S&L CRISIS that let the crooks in the front door w/ a comfy position and power to Start-the-Money-Drain, and EXPECTED PREDATORY LENDING by every opportunists in or attracted to the Industry, just like the scheme to "COOKING-THE-BOOKS" scandal that HIT the markets, it was the next obvious, unsurprising area to create this position for B of A Corporation to be in this position again, as will happen again and again on the future.

[bode]

I get it -- everyone hates Mozilo, and his golden parachute is to blame for the rough economy and a lot of people losing their jobs. Rest assured, if he lied to investors and regulators, he'll go to jail. But you know what? I don't think he lied, and I don't think he's going to jail. High-pressure sleazy sales tactics caused the subprime mess, but to quote Tanta at calculatedrisk, "we're all subprime now."

In case no one is watching, Merril Lynch is probably going write down nearly 15 billion next week. I'm sure CFC had their hand in all of those, right? Peter excuses the CFC bashing by saying "they're a proxy for the entire industry." and everyone piles on. I guess you missed the article about Lehman Brothers losing more than Mozilo's golden parachute in sham transactions in our fair city, eh? In that case it can be incompetence, but when it comes to CFC they are criminals?

I'm perfectly happy to rail against CEO excess -- I read the wonderful footnoted.org web site to learn all about it. But come on, your head is in the sand if you think Mozilo is anything but ordinary. Obscene, yes, but you'd do the same, and jealousy is the operative word.

End of the day, there is plenty of blame to go around. As former treasury secretary Robert Rubin (interim CEO of Citigroup, which lost $11bn in this mess so far) wrote "you can't know for certain when a market it overvalued or undervalued." Not until you look in the rear-view mirror, and to blame Mozilo for something that was endemic is mighty short-sighted. He can be the poster boy, but he is far, far, far from the proximal cause.

[Victor the Predictor]

zuuuuumie: if you aren't smoking dope, please demonstrate or send a link that shows that Nationsbank still exists. Standard wisdom says that Nationsbank *became* BofA.

[Thom Carter]

Barney Franks is just another ignorant bystander who has not taken the time to do any research before he lashes out at one of the great entrepreneurs of our time. Angelo has earned every penny he has enjoyed from the company he created and nurished into a giant in the industry. He has affected thousands of lives in a POSITIVE way and has contributed millions through his endless compassion for others. How dare this politician, found guilty of questionable ethical behavior and promiscuity, take a stab at one of the most successful Americans of our time. Angelo and CFC DID NOT create the financial crisis in which the nation finds itself. CFC has been the victim of an industry gone bad.

[banker4life]

You're joking right? CFC is a victim? They were the ones who relaxed lending standards to extend credit to unworthy borrowers. This was done in the attempt to gain market share back from their competitors. They may not have been the only doing it, but when they are the biggest firm in the mortgage banking industry, they deserve the public bashing. Fact of the matter is greed caused this mess: The CFC executives ignored common sense (with regard to lending standards) because they wanted ever higher sales numbers in order to attain whatever bonuses they could get each quarter. Do you really think that no one knew that these loans were going to go bad? Any risk management group in any bank could tell you that these types of loans extended to unworthy borrowers would do this. It was a question of WHEN not IF. But, executives don't like news that doesn't allow them to make higher bonuses, since they really don't care if it is a good business practice to keep a balance sheet with sound credit quality.

By increasing their loan production, salespeople were able to get higher commissions, Mozillo could tell the analysts on his earnings calls about the growing sales volumes and reap the benefits of a higher stock valuation. Poor credit borrowers who had no business being granted loans were able to buy homes and would make their payments on whatever product that was used to get them into the house of their dreams. Meanwhile CFC would sell the underlying loan and keep the mortgage servicing rights. Everyone won, right?

WRONG:

CFC's lower lending standards affected the credit quality of their balance sheet while the loans were held for sale, but since they weren't holding all of them, it affected whoever was holding them when the grenade went off.
Investors seeking ever higher returns, took on additional risk in the form of Collaterallized Debt Obligations (CDOs) based on these subprime instruments.

Once the "newness" wore off, the borrowers started missing payments and the mortgages started becoming 30, 60 and 90 days past due. In turn, this caused the value of the asset (the mortgage) to drop for the mortgage holder. Which caused the mortgage holder to seek CFC to repurchase them, or provide some kind of "make whole" payment to investors. Meanwhile CFC's credit rating gets downgraded, because ratings agency's and analysts doubt their ability to meet obligations. CFC stock is now down 88% from it's all-time high a few years ago. Layoffs are a common occurrence each quarter, in order to give the stock a temporary bump (since layoffs = cost savings).

CFC is now being sold for a little more than $4 billion, when a few years ago it had a market cap of over $20 billion. Meanwhile the CEO, still has no problem collecting compensation that is FAR and above more than any executive in the banking industry. All the time, he is revising his own equity and options sale plan to attain the highest value for his personal sales. The SEC can and should investigate, due to the access to inside information he had while making these moves.

In the end everyone lost EXCEPT Mozillo. He will walk away from this with a large severance package ($115 million), plus the $140 million he received from cashing options in the last 2 years at the peak of CFC stock value. Nice guy or not, his legacy will be whatever the fallout is from this debacle. Lets recap the impact to the THOUSANDS of lives touched below:

Shareholders: Lost 88% of their investment's value in CFC stock

Employees: Lost 88% of their 401K that was in CFC stock, and will very likely be out of work, if they don't want to move to Charlotte. The $570 million in cost savings for this deal comes from merging operations. BofA already has lower cost operations doing the same functions as many CFC groups in other locations.

US Taxpayers; Losses to be in the trillions, due to whatever idiotic plan the government comes up with to stem the bleeding. Guess who is funding the bailout to subprime borrowers?

Borrowers: TBD, based on whatever the government decides. Some will come out ahead due to profits made from flipping and being bailed out. Others will lose due to foreclosure and possible bankruptcy.

Secondary Market Bondholders: May be able to recoup only a portion of their investment in the CDO. This is a global issue, as these instruments have been sold to MANY international financial institutions.

BAC shareholders: Will see their earnings diluted even further, based on absorbing the impending lawsuits and increase in loan loss reserves to write off the junk on the balance sheet.

BAC employees: will be forced to endure possible layoffs and integration issues.

Small business owners in Calabasas, Westlake Village and Simi Valley: Likely will have to cut staff, due to impending decline in business. This will be attributable to the inevitable layoffs that happen for a merger.

Los Angeles and Ventura County: lower tax revenue, due to jobs lost and relocated to other geographic areas.

[Keith]

Zuuumie, you are so far off base it's not even funny. You must've picked that up off something like MoveOn. Behold the power of the internet to misinform.

[Hula Girl]

1 wrote, "Leave Mozilla alone, you’re jealous."

This sound's like a line outta hat gawd awful weepy "Leave Britney Alone" Video" on YouTube

http://www.youtube.com/watch?v=kHmvkRoEowc

"Anyone who has a problem with Mozillo, you deal with me!"

There's your 15 minutes of Mozillo fame, 1.

I offer it up to you on a Countrywide CD.

[Tim]

So how much money is too much money? Did Mozilo create CFC single-handed with no other employees? What about our taxpayer dollars that helped pay for the roads, schools, legal system that, had they not existed, would make it difficult or impossible to create and sustain a business? Try starting a company with uneducated employees, or enforce a contract without a viable legal system. There are no virgin births in business. No one creates any company all by themselves.

When do the needs and interests and taxpayers outweigh Mozilo's interest in having 100 million instead of 50 million?

Years ago, the news media reported that Imelda Marcos had 5,000 shoes. CEO greed is the same sort of mental illness. 100 million invested at 8% will generate 8 million a year or 160,000 a week. Just by breathing. And he doesn't pay country club fees or a corporate jet.

Sorry but, like Imelda's shoes, his compensation is way out of whack, and totally unfair to CFC employees and taxpayers.

[vultur]

The Question: This CEO stepped down as the head of Countrywide Financial
in February of 2007 with the stock riding an all-time head and profits soaring. After his departure he divested himself of his personal stock holdings, took a brief hiatus, and went on to oversee the takeover of his former company as Vice Chairman of the Bank of America in 2008 where he successfully led he reorganization of the company and salvaged 1,000s of jobs pocketing 10s of millions of dollars in the process.

The Answer: What he should have done.

This bastard should be the bulleye on the SECs dartboard.

[j]

Not only will he keep the country club membership and air travel privilege, but he also gets to keep the "every odd day use of George Hamilton's tanning machine" stipulation.

[jeff]

Hey Zuuumie. I've read your input before on many subject on a few blogs.
Still testing, being cryptic, and garnering the attention of us who know what you're getting at, and checking to see whose really paying attention?
The real question is how much of Bank of America's holdings are in the Caribbean? The answer is, all of what was there before including all of Nations Bank on paper.
The issue of no reciprocal agreements between most and the absence of reporting requirements to the IRS legally hides the details most Americans think our government and public are privy to. We are NOT.
You are correct in the amount of tax revenue lost to American corporations leaving the country.
Although many Congressman, Senators, and others for the past 10 years or more have called on these corporations to "Return home", there is way too much more money to ever consider returning, no matter whether it is KPMG, WalMart, HP, Global Crossing, Enron, most of Halliburton, Heinz, and thousands of others founded and made successful by Americans right here on our soil. Whether all of these are still in operation or not, is irrelevant.
These corporations have cost the U.S billions upon billions of dollars in lost revenue.
I know you're referring to the losses between the lines, and the lines to get our attention.
I also believe what you're really saying, is that, no matter the risk, Bank of America as a whole, has the resources to save itself in the event of having taken on too much risk and would likely avoid investment dollars from the likes of China, the Saudi King or it's prince's, and others such as has happened to Merrill.
Understand, that outside the standard curriculum of those privileged to gain more knowledge than the average person in our country, it still remains minimal knowledge at best, except for those driven enough to seek more of the truth and not jump to premature conclusions without first doing their own research and investigation of the facts.
Jeff