Countrywide bankruptcy? Bank of America keeps its options open
Is bankruptcy possible for Countrywide Financial Corp., the Calabasas-based home lender whose acquisition has cost Bank of America Corp. tens of billions of dollars?
BofA Chief Executive Brian Moynihan didn't rule that out Monday in addressing an analyst conference in New York, though he didn't elaborate on the chance of such an extreme action either.
Moynihan instead focused on Phase 1 of his cost-cutting plan for the bank, which other corporate officials said Monday would eliminate about 30,000 jobs from a base of about 287,000.
The effort will shave $5 billion a year in expenses from the bank's consumer businesses and support operations when it is fully implemented in 2013, Moynihan said. The bank's shares rose 5 cents to $7.03 in early trading Monday.
Repeating his mantra, Moynihan said acquisitions by his predecessor, Ken Lewis, had burdened the bank with overlapping systems, "tens of millions of square feet we don't use," and businesses not focused on its core customers.
In one example of the divestitures he is making, Moynihan described the correspondent mortgage business, which buys loans from smaller lenders, as "simply enabling a competitor, and at high cost."
The correspondent lending business was part of Countrywide, which Lewis acquired in 2008. Countrywide, once the No. 1 mortgage lender, had tried to dominate the market in high-risk loans along with more conventional products.
Of six main Bank of America business lines, mortgages are the only one still losing money on operations. Moynihan said settling lawsuits related to investor losses on Countrywide's mortgage-backed securities would take years.
Asked if he would consider putting Countrywide into bankruptcy, he replied, "We look at all our options."
The $5 billion represents 18% of the current $27 billion a year in annual operating costs for the consumer businesses and support operations. Phase 2 of Moynihan's "New BAC" streamlining will focus on operations that handle large businesses and institutional clients such as pension funds.
Those operations have about $28 billion in operating costs. Moynihan said it wouldn't be possible to cut costs as much there as in the consumer and support areas because there's less physical infrastructure to go after and he's not changing the compensation for the high-priced bankers who work in those segments.
"It will not be as fruitful on a dollars-per-square-inch basis," he said, "but it will be fruitful."
-- E. Scott Reckard
Photo: Bank of America Chief Executive Brian Moynihan's cost-cutting plan will shave $5 billion a year in expenses from the bank's consumer businesses and support operations when it is fully implemented in 2013. Credit: Chuck Burton / Associated Press