The Federal Reserve Board on Thursday announced its approval of the notice of Bank of America Corporation, Charlotte, North Carolina, to acquire Countrywide Financial Corporation ("Countrywide"), Calabasas, California, and thereby indirectly acquire Countrywide Bank, FSB, Alexandria, Virginia, and certain other nonbanking subsidiaries of Countrywide.

Attached is the Board’s Order relating to this action.

Attachment (1.38 MB PDF)

It is not just Bank of America that is reeling from subprime problems, the largest banks in the world have posted $290 billion of credit losses, since the beginning of 2007.

Bordering On Insanity

Bank of America Net Drops 77%

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%.

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.

“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.

We have heard some of this before, Citigroup may have to write down the value of mortgage backed investments by $12 billion, according to Sanford Bernstein. In a note to the company, they said Citigroup may post a loss. Last month Goldman Sachs said Citigroup may have to cut back its holdings by $9 billion. Meanwhile, Bank of America could also face writedowns of $5.5 billion while JP Morgan Chase may have to write down $1 billion.

A Worsening Outlook: Bank of America. Rising Credit Losses, Problems in Credit Cards and Home Equity, Writedowns on CDOs “Unknowable”, Charge-Offs Will Rise Next Year; CEO Ken Lewis Will Face More Problems as Consumer Spending Slows; Some Say Bank of America Stock Will Outperform the mortgage industry.

Bank of America, PNC Financial, Wachovia Announce $5+ Billion In Writedowns. Bank of America Says Provision Cost Reflecting Boosted Reserves; PNC Financial 4Q Forecast Below Analyst Estimates, Increases Provision and Revises 2008 Forecast; Wachovia Sees 4Q Provision Expense $1 Billion Higher Than Charge Offs.

Protecting Against Structured Investment Vehicles (SIV) Losses. Protecting Against SIV Losses. Legg Mason and SunTrust Banks Propping Up Money Market Funds; Legg Mason Pushing $338 Million in 3 Money Funds, SunTrust Clearing to Protect 2 Funds.

Bank of America unveiled a plan Thursday to close its wholesale mortgage division, leaving it with just it’s retail production channel in residential finance.

“Bank of America’s mortgage rates were never competitive anyway”, said industry advocate Scott Pasinski. “There are literally dozens of lenders that offer both better mortgage rates and products. They will not be missed.”

Among lenders that table fund through loan brokers, Bank of America ranked 10th in the second quarter but first among retailers. As part of the move, 700 positions will be eliminated.

In 2001 Bank of America exited the correspondent channel entirely and liquidated its subprime mortgage origination business.

“We’re proud of our record in wholesale,” said Floyd Robinson, president of the bank’s consumer real estate group.