It was a very rocky day for shares of Countrywide Financial. A lot of news and speculation. This all started this morning around 11:00, 1-8-2008. The stock went straight down. We called around, and it was tough to find people who knew what was going on. We were able to track down a number of the traders who told us this was living on bankruptcy speculation, and it kept going down. The stock was down by as much as 25%, and early in the afternoon, trading was halted. Countrywide put out a statement saying there is no truth to this, and the stock came back, but it is still down almost 20%.
According to Wall Street Journal, Deal with Bank of America and Countrywide Could Come Soon
What is going on now is that Countrywide, according to a report from Dow Jones news service, is potentially in talks to sealy deal with Bank of America. Bank of America buying it out right. Bank of America bought a $2 billion stake in Countrywide during the summer and that happened at a time when Countrywide was desperately searching for capital. Since then, things have deteriorated and Countrywide has had rising foreclosures.
Reaction with Yves Lamoureux of Blackmont Capital.
“Well capitalized senior financial companies will eventually profit from the ongoing demise of the smaller home mortgage lender competitors. This is basically what we’ getting today. Bank of America will buy a weaker mortgage player, and they will be stronger going forward. I think this is great news for Bank of America shareholders”.
Investors who stuck with Countrywide may come as welcome relief. Countrywide has dropped more than 80% in 12 months. With doubts that the company will be able to finance itself, Bank of America has a $140 billion balance sheet so it can withstand a lot of pounding and there may be plenty to come.
Countrywide is a target of lawsuits and under scrutiny by regulators.
Talk about their market cap of $4 billion a year ago it was like $ 27 billion. Why would Bank of America do this? They probably want to watch their investment. Bank of America has invested $2 billion already and the value of that investment has declined by $1.3 billion. Statements from the same time show they got the right to match any offer for Countrywide.
Bank of America is the biggest or close to being the biggest in all of the US consumer businesses except for Morgan so by buying Countrywide it could scale up at a discounted price in the mortgage business and reduce Countrywide’s funding costs by about $200 million. Citigroup estimates they pay about a half point more in interest than peers for deposits and Bank of America may be able to cut $400 million in the cost of its own mortgage business.
So huge cost savings for Bank of America in buying Countrywide.
Bank of America IS buying Countrywide Financial for $4 billion in stock. This could be great for Bank of America. This deal makes them all largest mortgage lender and servicer as well and expand their leading share in the US consumer banking industry. At the same time, it removes one of the concerns in the markets, the future of Countrywide.
The chief executive of Bank of America is calling this a rare opportunity to bind. He sees Countrywide as a key part of growth. one reason for the optimism may be that Bank of America does not plan to originate any subprime mortgages and is said to be willing to renegotiate existing mortgages.
Analysts say even at $4.1 billion, Bank of America may have received a bargain when it bought out troubled mortgage giant Countrywide Financial.
Tags: Bank Of America, Countrywide Financial, Lenders With Problems 2007, Merger/Acquisitions, Mortgage Bubble, Mortgage Defaults, Mortgage Delinquencies, Mortgage Implosion, Mortgage News, Mortgage Video
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