Investors doubting Countrywide-B of A merger

Reports over the weekend that Countrywide faces an FBI investigation for possible securities fraud are causing some investors to doubt that Bank of America will purchase Countrywide.

Reuters:  Countrywide Financial Corp shares fell more than 12.5 percent on Monday following reports it was being investigated by the Federal Bureau of Investigation for possible securities fraud."

More: "The decline came amid growing fears that Bank of America Corp, which agreed in January to buy the largest U.S. mortgage lender for $4 billion, might renegotiate or abandon the purchase, which it has said it expected to close in the third quarter." Reuters quotes a Bank of America spokesman saying the deal is "on track."

That's not what the market is saying today.  At 11:30 a.m., Bank of America shares were trading at $35.32. The takeover offer is .1822 B of A shares for every Countrywide share, which translates to an offer of $6.44 this morning. Countrywide shares are trading well below that amount -- at $4.41. That's a discount of 31.5% below the offer. The discount on Friday was 24%. Translation: investors have doubts about this deal.

Analysis: If Bank of America doesn't want Countrywide, does anyone want it?

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Countrywide chairman Angelo Mozilo, by AP

Comments

[Laker]

I think the FED should buy country wide, he is the only one who wants it....
Seriously, nobody wants a losing business with liabilities higher than assets. Add to that the very good chance of future huge losses as a result of law suits, etc.
I'm betting $200 that CFC is going for bankruptcy.

[A Scanner Darkly]

Perhaps BofA will walk away from CFC due to the stock reset. Much like many SoCal homeowners, CFC obviously isn't worth what they offered to pay.

[Michael Snyder]

I'm thinking it was Ben Franklin who coined the phrase, "A fool and his money are soon parted, but he probably gets the credit because of his publishing. In practice I'm sure this has been true since Cain slew Able.

There have been anti-trust issues with this merger from the get-go and I've yet to hear of one drowning person successfully saving another drowning person. Right now BA needs to be looking to save itself from the collapse of the bond market that threatens their capitalization. Whatever "bad money" they have tied up in CW is a pittance compared to what the skyrocketing cost of short term debt is doing to their bottom line.

[Cal]

The portfolios are deteriorating very rapidly and I think CFC got caught by the secondary market imploding and kept a higher amount of late 2006 early 2007 loans on the books. Those loans are a disaster. Then there is the option arm portfolio which books negative amortization as revenue.. which sounds good until you realize you wont get paid back.

Banks are leveraged institutions, small losses can impact their ability to lend to an amount much greater than the losses. I know BofA was saying that they can take losses that have already occured to CFC and use them to offset profits. But if BofA starts seeing that they will take significant losses that will impact its ability to lend then there will be no deal. It is up to CFC to take those losses now as much as possible before the takeover completes for the takeover to have a shot of going through.

[victor knopp]

i have a stinking feeling that b of a was using contrywide as a sort of off the books investment firm,they might not have a choice in buying the company they helped inable

[Laker]

To continue "A Scanner Darkly' thought, I think BofA should jingle mail the keys to country wide's offices asap.
oh, wait, they don't have the keys yet....better not touch a hot potato.

Michael Snyder, skyrocketing cost of short term debt....lookout for higher rates for short term CD and savings/money market accounts...
They need our cash....

[IToldu2CashOut]

Oh I'm sure Uncle Sam will want to buy it. Why invest in infrastructure, education, or health care when you can buy worthless mortgages and enrich all your real estate cronies?

Why buy get something of value you can buy something of negative value for a giant cost?

[Tombstone Realty]

People have been forecasting this for awhile - remember the poster who said they weren't submitting 1089s? The FBI left them alone because they were making money, now that the economy is tanking, and CFC is revealed as a sham - the politicians want blood.

Sooooooo they sic the FBI on them. Where was Congress before this all happened? Being elected with CFC pac money, I bet.

BofA would be genuinely stupid to agree to this sale - UNLESS there's already a deal in the works where BoA buys the company, and Congress/Regulators will give them some yummy thankyous - perhaps tax breaks or write offs - for being 'brave' and saving the 'american dream' of current mortgage holders.

[the markster]

Wasn't that the whole point? B of A buys countrywide, uses their losses as a tax break(deduction?) then lobbies congress to buy CFC's bad debt. B of A wins on all fronts: they look like saviours, they get a huge tax break and they pawn their liabilities off on the government/american tax payer.

I gotta say something about that photo. Everyone should add a dialog bubble to their post.

"live long and prosper"

"hey...what am I, some kind a' - you, get me a coney dog, eh"

[GeekSeek]

Eliot Spitzer gets caught up in federal wiretap. Hoist on his own petar. http://www.slate.com/id/2186249/

Certainly sends a message to the folks out there investigating questionable activity by the financial companies: Make a big show of it, come up with some villains, but do not go overboard.

I'm beginning to wonder if the whole Countrywide / Bofa deal was/is just more manipulation.

[Michael Snyder]

Laker,
One can only hope, but I'm betting on a desperate grab for margin. Most consumers are tapped out and institutional investors are looking for the same increased yields.

Tombstone,
The regulatory quid pro quo has got to be a lifting of the anti trust provision limiting the holding of any institution to 10% of the registered deposits in the nation. Combining the assets of BA and CW would exceed this limit so it would have to be waved to gain regulatory approval. You can be sure this would lead to another round of "consolidation" in the financial markets. When the dust settles we'll be lucky to have half a dozen surviving major banks and the consumer will be well and truly screwed as any resemblance of competition is eliminated from the banking business.

[vultur]

...still chucking over the 2008 Housing Bubble Credit Crunch Scapegoat Nickname of the Year

TANgelo Mozilo!

Aren't you kind of a de facto bad guy when you're supposed to be running a serious financial firm and yet baked the color tang?

[Sam]

There is a golden rule in America as Gates found out the hard way, you do not want to make too much money in America, The reality is Angelo is going up the river in this. The Govt and America want a scapegoat on the mortgage debacle and he will be the poster boy. The B of A deal might still happen, but it will be half what the last offers was.

[William Jones]

I would buy, but only if Angelo's cufflinks are included in the deal. If I put the cufflinks on E-Bay and write-off the bad debt I would do a little better than break even.

[Mark Too]

Pete, you're an excellent writer, but you need to brush up on your math.

The numbers you quoted were correct but you didn't use the correct denominator.

It should be 6.44 - 4.41 = 2.03
2.03 / 4.41 = 46%

Not 2.03 / 6.44 = 32%

It's the CountryWide shares that are being converted.

I'm surpised that nobody has called you on it yet. Many people have complained that borrowers signed documents that they didn't understand. Is there any wonder?

And by the way, based on the closing price of both companies shares the risk premium is now over 50%

[Maggie Knowles]

Countrywide falls to 13-year low on FBI probe reports
http://www.latimes.com/business/la-fi-
countrywide11mar11,0,7934605.story

Last paragraph of this article:

"Some critics have also faulted Bank of America for planning to install David Sambol, Countrywide's chief operating officer, as head of the combined company's mortgage operations. The bank had no immediate comment on that plan."

[whaa]

Mark Too, what are you talking about? Pete wrote "That's a discount of 31.5% below the offer" - the offer being $6.44.
I don't see where he's wrong. 31.5% of $6.44 equals $2.03.
????

[Robbie Fields]

I think Angelo is giving the Cardassian greeting

"Live Long and Prosper?"

[Robbie Fields]

Of course, it's a Cardassian threat that Angelo is flashing.

[the markster]

so angelo is a cardassian sent here to take over the world/destroy the human race....it all makes sense now.

[JohnnyB]

Yes, he's one finger away from living long and prospering...

[Mark Too]

Mark Too, what are you talking about? Pete wrote "That's a discount of 31.5% below the offer" - the offer being $6.44.
I don't see where he's wrong. 31.5% of $6.44 equals $2.03.
????
Whaa, The base in this transaction was the $4.41.
$2.03 / $4.41 = 46.03%

Put another way, if I loan you $4.41 and you repay me $6.44 I've made 46% on the money that I have loaned to you.

If you've borrowed $4.41 from me and paid me back $6.44 you've paid 46% for the use of my money.

You don't start at the back end of the transaction, the $6.44, and divide by the amount of interest that you paid, the $2.03, and come up with the interest rate.

That is what I meant by saying that people sign loan documents that they don't understand. Someone offering you terms like that and saying that you are only paying 31.5% on the loan would be lying, you would be paying a much higher rate, 46%.