Analyst to B of A: Walk away from Countrywide

It's all about walking away these days, isn't it?  Homeowners are walking away from their mortgages, Microsoft walked away from Yahoo, and now an analyst is encouraging Bank of America to walk away from its deal to buy Countrywide Financial.

From CNBC.com: "Friedman, Billings, Ramsey analyst Paul Million said continued deterioration in the mortgage market, and weak pricing for nontraditional loans in the investment market, mean Bank of America would have to take between $20 billion and $30 billion in writedowns when it closes its acquisition of Countrywide."

More: "'Bank of America should completely walk away from the Countrywide deal, as Countrywide's loan portfolio will prove a drag on earnings and could force Bank of America to raise additional capital,' Miller wrote in a research note."

Not just walk away, but completely walk away.

Random follow-up: After hosting a weekend playdate for six kids, ages 1 to 4, I have new insight into B of A's statement last week that it might not stand behind Countrywide's debt. You see, the six kids watch each other closely to see what's available, treat-wise, and who's getting it. Juice boxes? Pancakes? Syrup? Once one kid gets a treat, out go the lower lips of the other five until they get theirs.

Bank of America, every bit as watchful as your average 4-year-old, wants what one of the other kids already got. The other kid is J.P. Morgan Chase, and it got a sweet deal from the government when the Fed guaranteed Bear Stearns debt. In this case, B of A is eyeballing the debt as a toddler would broccoli, saying, "I don't want yucky debt and I won't eat it! Jamie Dimon didn't eat his!"

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: AP

Comments

[Rob]

I still am not convinced these chairs are not plotting something. They cant be that completely clueless. Just the other day they were reinstating their confidence in the deal. Makes me wonder about BofA solvency.

[mike]

don't you have to take a companies garbage with its assets.

[TrojanDLA]

To those who found it ethically abhorrent for a homeowner who can "afford it" to walk away from their upside down loans - BoA is planning just that.

They plan to buy Countrywide, transfer all of the debt to a holding company separating it from the goodwill and licensing of the "Countrywide" name, and then guess what? Let that holding company declare bankruptcy and leave creditors in the lurch.

Geee, and people wonder why homeowners "don't care". BoA has NO INTENT to satisfy any of Countrywide's creditors.

[mbob]

Everything critical to leading a useful adult life has been taught by the end of kindergarten.

Angelo could have flunked. He hasn't been straight about much of anything else.

[Michael Snyder]

Snyder's first law of consultation once again rears its' ugly head: "People tend to value advice in direct proportion to what it cost them." I'm willing to bet there's not a single person on this blog who'd give two cents on the dollar for Countrywide and now a team of high paid analysts have waived their magic wand and pronounced this purchase of this glorified Ponzi scheme to be a bad idea. Brilliant! Now where do I sign up for a six digit pay cheque for dispensing common sense?

As I said before, the only reason for BA to acquire CW is to undermine the anti trust provisions that limit any one bank to ten percent of the available deposits in the nation. Given the Bush administration's "cozy" relationship with the "spoiled children" that run corporate America, gutting consumer protection won't get any easier than it is now.

In another classic case of the law of unintended consequences, Congress is scheduled to revisit its' legislation on ethanol that's resulted in food shortages and riots around the world. My money's on the agro-lobby with BP at the forefront. What's the health and welfare of a few million people in the face of billions in profit for Wall St.? I'll bet they'll argue changing this legislation will result in increased cost to the consumer. Any takers?

[mike]

correction...i misspelled. i meant to say don't you need to take a company's garbage?

[mike]

to michael snyder...

the dispensing common sense comment was great. i was laughing but you threw me off with the ethanol b.s.

[Laker]

Bank of America Walking away from country wide is not exactly the same as the 2004-2007 average Joe 6pack home buyer with 80/20 loan with zero down payment...
The difference is the Bank of America actually have put a DOWN PAYMENT. I believe it was $2 Billion back in 2007. Now the question is whether it make sense to keep "paying" the expensive mortgage in the form of writing down $30-38 Billion of worthless loans... Or simply to forgo the $2 Billion down payment.
It is like Joe 6pack actually bought a $1,000,000 house back in 2006 with 5% down of $50,000. Now the house worth $650,000, and is still free falling in price and we expect it to be worth $400,000 when the dust settles. So, should Joe 6pack walk away???

Short answer: yes.
Actual answer, Joe does not want to lose his down and he can see "future appreciation" so, he will need some sort of bailout to keep his house: that is BoA to buy CW, so cut this short, FED comes a long and gives $30-38 Billion guarantee for CW garbage loans, and BoA is happy ala the kids the Peter was watching over the weekend....

[Michael Snyder]

Mike
You seriously need to check the commodities markets & the news from places like Indonesia, Egypt & Manila. The government practice of subsidizing companies who burn food has the potential to tip a delicate balance in large portions of the world. Just like the price of oil eventually effects the price of real estate, the cost of food acts as a tax on the population. (we have to buy it) When increasing prices make food unavailable to large portions of the population, those people will act out of survival & the law of the jungle will prevail.

Since the seventy's I've supported organizations who's purpose is to end starvation, and for a while we were winning. Then along came ethanol, and within a year we're seeing food riots in major population centers. If you object to homeless/hungry people driving down the price of your real estate; think of what it must be to be homeless & hungry. I may be off thread, but it's not bs.

[puckhead]

"Actual answer, Joe does not want to lose his down and he can see "future appreciation" so, he will need some sort of bailout to keep his house: that is BoA to buy CW, so cut this short, FED comes a long and gives $30-38 Billion guarantee for CW garbage loans, and BoA is happy ala the kids the Peter was watching over the weekend...."

I think your paranoia is starting to cloud your judgment. Go to Starbucks, have a frappuccino and mellow out. You’re beginning to sound like the Mel Gibson character in Conspiracy Theory. If you don't/ can't/won't understand the difference between Bear Stearns and Countrywide, then it's all just throwing up trash and seeing what sticks.

[Martin]

From what I understand, the real value of Countrywide is its loan servicing division ... the amount Countrywide is paid to service loans with monthly statements, customer service and, er, forcelosure notices.

Since Countrywide was and remains the largest loan originator in the nation, the company still has value. The only way for the value of Countrywise to slide further is to replace Mozillio with our outgoing U.S. president. He's the only guy who could possibly screw things up even more.

[mbob]

Yeah, ethanol's a devil's brew. Mike Pollan follows the corn impact for a ways in his books and the NYT's Sunday Magazine.

Basics: it takes more energy (petroleum) to raise corn in an industrial fashion than its conversion can return. Factor in industrial ag runoff into watersheds, pesticide residue, herbicide residue, fertilizer mfg. cost, transport cost, processing cost etc. and it looks grim. Then add in the USDA's subsidy nightmare and the numbers go off a cliff. You and I are footing the enviro cleanup bill for corn's toxic side effects.

It's kinda veggie crack.

Next time anyone watches some archival scenes from the '60's or even early '70's, check the people's general shape. That was pre-corn syrup and trans fat days. Our corn habit has turned us all into Mr. Creosote (Monty Python's The Meaning Of Life exploding glutton). And the same crop is about to do the same thing to our foodscape/fuelscape.

Norman Borlaug first started the chemical-centric "green revolution", particularly in India, which led to mass small farmer suicides when they were faced with chemical-enhanced competition. That's all falling apart now. Cheap oil, cheap food is gone.

Now that the petro cost has ballooned, with no sign of reversal due to global demand, our house of cards (sic), including domestic housing and credit, is about to suffer a terrible shock.

Hey, don't take my word for it, check W. Buffet's remarks this last weekend at the annual Berkshire Hathaway love-in. He doesn't see much above single digit returns in the forseeable future.

[Laker]

".....then it's all just throwing up trash and seeing what sticks...."
Puckhead,
I think it is more like having sh** hit the fan...and the fan is still running at full speed, and the patient is in the middle of one of the worst diarrhea attacks of his life.
Seriously, I don't like starbucks, and with today's economy, let them suffer. I'm pretty mellow and coffee does good to me only in the mornings.
I agree that Bear had a lot of financial ability to collapse the market of wall street. But if you think about CW market share of mortgages, CW going under will get many other small mortgage company down with it.
You will see Helicopter Ben with Paulson putting news conference and saying that by them saving CW is for the good of the US citizens and if they had done nothing, the ability of the average citizen to find a mortgage would diminish 10 fold...
I know it is not true, but it sure would convince many that it is true.

[Mr Popo]

mbob said: "Basics: it takes more energy (petroleum) to raise corn in an industrial fashion than its conversion can return."

When you add in all the hidden costs of the current energy paradigm, including huge govt. subsidies, wars, global turmoil, then it becomes increasingly obvious that there are better methods of meeting energy needs. Corn may not be the best solution, but moving away from petroleum must be. At least Mssrs. Cheney, Bush, McCain and their ilk aren't fomenting any corn wars… Yet.

[Chris]

I like the kid's behavior angle....I often admonish my son and his friends to stop acting like the UN