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InvisibleDiploidM
Cuban


Folding@home Statistics
Registered: 01/09/03
Posts: 19,274
Loc: Rabbit Hole
Bank of America Buys Subprime Lender Countrywide
    #7866434 - 01/11/08 06:59 PM (16 years, 21 days ago)

This is risky, but it might pay off...

--

Bank of America's new real estate buy is a fixer-upper that will be a bargain long-term, most analysts expect. But at $4 billion, mortgage giant Countrywide cfc could be a money pit.

Friday's deal will turn BofA into the nation's dominant mortgage lender and may have spared Countrywide from bankruptcy. It also may spur consolidation, as banks retake control of mortgage lending after largely ceding the business to specialty lenders.

BofA will swap 0.1822 of a share for each Countrywide share -- equal to $7.01 as of Friday's close. Countrywide's shares -- which surged 51% Thursday on reports of a looming deal -- sank 18% to 6.33 on Friday. Countrywide hit a record high of 45.22 in January 2007.

'A Rare Opportunity'

"Countrywide presents a rare opportunity for Bank of America (NYSE:BAC) to add what we believe is the best domestic mortgage platform at an attractive price," BofA Chief Executive Kenneth Lewis said.

"We are aware of the issues within the housing and mortgage industries," he said. "The transaction reflects those challenges."

Analysts said the price could still be too high if the worst housing recession in more than a decade lasts longer and runs deeper than Bank of America expects.

BofA already has lost more than half of the $2 billion it invested in Countrywide in August, as soaring subprime loan defaults and a credit crunch pummeled the mortgage lender's shares.

Countrywide on Tuesday denied rumors that it might go bankrupt. But it also reported that delinquencies and foreclosures hit record levels in December.

"The inherent risks are what happens with housing," said Kris Niswander, associate director at SNL Financial. "If BofA was thorough in their due diligence, then this could potentially be very rewarding."

BofA shares fell 2% on Friday. Moody's Investors Service said it may downgrade the bank's credit rating. It cited the need for BofA to raise capital, as well as risks from integrating the top U.S. mortgage lender and exposure to further losses and lawsuits.

More Banks May Follow

While analysts acknowledged those concerns, they said the deal undervalues Countrywide by a large enough margin to cover any unforeseen losses.

"I don't think there's any question that they got a great deal," said Guy Cecala, publisher of Inside Mortgage Finance.

He expects the deal to fuel more acquisitions given that BofA now controls about 25% of the mortgage-lending business, about double the share of No. 2 Wells Fargo.

"You don't want somebody like BofA to have twice the number of customers that you have," Cecala said.

"This deal is going to trigger" consolidation, he added.

CNBC reported Friday that Washington Mutual (NYSE:WM) wm, which also has suffered from soaring defaults of subprime mortgage loans, had held "very preliminary" merger talks with JPMorgan Chase (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) jpm.

Washington Mutual shares rose 4% to 14.69.

BofA has grown into the No. 2 U.S. bank (NYSE:USB) via a series of acquisitions, including the $21 billion purchase of Chicago-based LaSalle Bank last year from Holland's ABN Amro (NYSE:ABN) abn.

The latest deal will let BofA expand by selling products and services to Countrywide's customers.

The mortgage business outside of subprime is "still the very best business that a bank can get involved in," said Richard Bove, an analyst at Punk Ziegel. "Once they stabilize the situation, they'll start to grow."

BofA expects the deal to close in the third quarter pending regulatory and shareholder approval.

The bank said Countrywide will operate separately but will no longer write subprime loans.

It wasn't clear how many Countrywide jobs might be cut. The lender has about 50,000 employees, most in Southern California. It has cut 11,000 jobs in recent months.

Countrywide and other mortgage lenders had prospered in recent years by bundling home loans into securities and selling them to Wall Street investors.

But investor interest dried up when defaults started rising, depriving lenders of funds to write new loans and forcing dozens into bankruptcy.

But don't expect subprime loans and securitization to disappear.

"It will all come back," Cecala said. But for now, "the market is broken."

"Securitization will go through a short adjustment period," Bove said, "but it's not going to go away and it's not going to decline. It's a growth sector."

money.cnn.com


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Republican Values:

1) You can't get married to your spouse who is the same sex as you.
2) You can't have an abortion no matter how much you don't want a child.
3) You can't have a certain plant in your possession or you'll get locked up with a rapist and a murderer.

4) We need a smaller, less-intrusive government.


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InvisibleZippoZM
Knomadic
 User Gallery


Registered: 06/17/03
Posts: 13,227
Loc: Pongyang, North Korea
Re: Bank of America Buys Subprime Lender Countrywide [Re: Diploid]
    #7872720 - 01/13/08 09:34 AM (16 years, 19 days ago)

this somewhat aggrivates me, i knew that after 3 or 4 days of coutrywides stock sinking like a rock, that it would eventually re-bound, and there itw asa 50% surge. If only i had been able to trade online, i could have gotten in on that deal. Grrr...


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PEACE

:mushroom2:zippoz:mushroom2:



"in times of widespread chaos and confusion, it has been the duty of more advanced human beings - artists, scientists, clowns, and philosophers - to create order. In such times as ours however, when there is too much order, too much m management, too much programming and control, it becomes the duty of superior men and women and women to fling their favorite monkey wrenches into the machinery. To relieve the repression of the human spirit, they must sow doubt and disruption"

"People do it every day, they talk to themselves ... they see themselves as they'd like to be, they don't have the courage you have, to just run with it."


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OfflinegeokillsA
∙∙∙∙☼ º¿° ☼∙∙∙∙
Male User Gallery

Registered: 05/08/01
Posts: 23,417
Loc: city of angels Flag
Last seen: 6 hours, 23 minutes
Re: Bank of America Buys Subprime Lender Countrywide [Re: ZippoZ]
    #7872942 - 01/13/08 11:08 AM (16 years, 19 days ago)

> i knew that after 3 or 4 days of coutrywides stock sinking like a rock, that it would eventually re-bound

3 or 4 days? CFC had been declining for no less than a year (and was "sinking like a rock" for at least 7 months as it slid from $40 to $4.43)! A very dangerous trade to hope for upside! If Bank of America hadn't bailed them out, they were facing a very real risk of bankruptsy and the stock would have gone to zero.

http://finance.google.com/finance?client=ob&q=CFC

On that note, the Bank of America bailout is curious, as supposedly no bank in the US is supposed to hold more than 10% of the national deposit base, but this deal will give Bank of America more than that 10% limit. Apparently this was justified because Countrywide is a "different type of bank". Even so, I think it was a good event, as it has restored some confidence in the market alongside multiple foreign capital investments in our domestic banking system and favorable talk from the Federal Reserve on Friday, indicating that they are ready to provide substantive rate cuts to help ease the tight credit markets and stimulate more growth and investment.

The worst of this corrective cycle may be close, and we may in fact be creating the "bottom" of the cycle right now. Even negative economic data coming out throughout the remainder of the month may be looked upon favorably, as it gives the Fed more room to cut by greater than 0.25% at the next meeting, or even by implementing an "emergency" rate cut before the planned meeting at the end of the month.

If you have been considering investing for the long-term, this would be a great time to start picking away at the attractive valuations that have been created by the panic. You should however, avoid housing and retail stocks as they likely have more to fall. The "oil patch" has pulled back nicely, and this would be a good time to start building a position in any oil service or integrated oil company, such as ConocoPhillips (COP), Transocean (RIG), or if you want to take on more risk and speculation, consider the small Argentinian oil play Petrobras Energia (PZE).




Disclosure: I have been long Transocean (RIG) for about one year,
and initiated a long position in Petrobras Energia (PZE) on 1/10/08.


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··∙   long live the shroomery  ∙··
...π╥ ╥π...


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