Countrywide rescue: $4 billion

Over valued versus the risk of litigation, talent flight, legislative constraints, portfolio loss and about every other imaginable variable. Overvalued servicing rights with disappointed servicing investors. Average industry systems, nothing great. Short staffed already. More leaving. Mozillio defineltly a liability and not an asset.

While on paper the acquisition versus the valuation of loan servicing looks good, the reality is a whole mess of operational and regulatory risk. The Countrywide CIO was just announced leaving for FIS (Fidelity) and the state of the art systems was one of the selling points in the acquisition. An asset sale will probably be the answer.

Countrywide not trusted by brokers and closes it sub-prime wholesale division. BoA is out of the wholesale business completely. Countrywide has lots of attractive assets. Hmmm!  Firesale!

1) Regulatory issues 2) Share holder approval

Implications: 1.Milestone in the unfolding International Financial Crisis. 2.Dangerous Spirral: a weakening economy and rising mortgage delinquencies survive on eachother. 3.Reduced spending and increased delinquencies by the average consumer has risen. 4.Failure of Countrywide would pose a major risk to the U.S. Economy. 5.Intervevtion by the Federal Reserve Bank is immenient. 6. Bankruptcy would...

While many eyes are on the transaction as a proposed bailout for Countrywide, Bank of America will be solving a good many problems for themselves, while purchasing the fuel for tremendous growth.  The advantages for Bank of America are many but the largest are the resolution of their August 2007 investment of 2 billion in Countrywide for a 16% stake now devalued by the market,...