August 23, 2007

BofA pays $2 Billion for a share of could-go-bankrupt, desperate-for-cash Countrywide Mortgage

Kind of a strange deal - they pay $2 Billion and get shares yielding 7.25% that can be converted at $18 worth 15% of the company. And BofA knows that if CFC fails, it takes down the whole sector, so worth a $2 Billion bet. With CFC shares down 53% this year, BofA reaches out and tries to catch the knife... we know how that usually turns out...

And Mozilo, in the middle of a massive dumping of CFC shares, put out this news with some hilarious "vote of confidence" spin, in a desperate attempt to pop the shares and stop the run on his banks.

Uh, Angelo, I think a good vote of confidence would be for you or ANYONE who works for you to buy a share of CFC. Come on Angelo - just one share. Just one? Maybe you should be the one investing in CFC - you got the cash after all after all your well-timed CFC sales.

Bottom line: He needs cash and needs it bad. The deal is at $18 a share. And it puts BofA second in line to the bond holders after the bankruptcy filing as the shares are preferred.

In my personal opinion, if you work for Countrywide, get ready to be laid off. If you bank with Countrywide, get your money out of there NOW.

Note - I'm short CFC via Oct 07 puts. Just a matter of time...

Countrywide Financial Says Bank of America Made Equity Investment of $2 Billion Into Company

LOS ANGELES (AP) -- Countrywide Financial Corp. said Bank of America Corp. made a $2 billion investment in the company Wednesday as the nation's largest mortgage lender tries to weather a credit crunch that's rocked Wall Street and the mortgage industry.

"Bank of America's investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success," Angelo R. Mozilo, Countrywide's chairman and chief executive, said in a statement.


Anonymous said...

Ok idiots, listen carefully here.

I'm Mozillo. I'm about to go broke. I can't sell CP, I can't go to the discount window, I just tapped my $11b credit line and there is no more.

So here comes my "Savior", BAC. They "give" me $2 billion in money in exchange for convertable preferred. I agree to pay them 7.25% and they get rights on roughly 111 million shares of stock ($18 by the 2 billion)

Sounds like a good deal, right?


Here's why.

The day after I do this, BAC shorts 111 million shares of my stock! This nets them $2.8 billion dollars RIGHT NOW. They get interest on the $2.8 billion on top of it. So now if I'm BAC I just made $800 million bucks.

If the stock runs I have an $18 cover. But if I can short the stock to ZERO, I pocket the entire $2.8 billion PLUS I have preference picking over the bones PLUS I got my coupon until they die.

You this won't happen? The @#$% it won't! I've seen it DOZENS of times. Hell, this is old @#$% guys.

So is CFC stupid? Or are they REALLY in that tight of a box?

By the way, Cramer wrote about this years ago here

You got a gift here if you're long and underwater. GET OUT AND DO IT NOW.

If you're short, why would you cover? BAC is going to short this pig to zero. That's how they win. They've got a delta-neutral zero-risk trade on this one guys.

Don't be idiots; this sort of issue is NEVER good news.


AHM did one of these and guess what - they got shorted relentlessly and died. CFC did one months ago privately, and guess what - they never saw that price again, and THAT ONE had a PREMIUM over the offer price.

This is at a DISCOUNT.

I'm short. Hurt? Hell no; I have plenty of free cash margin on my account. I'm not stupid enough to get close enough to the line to get hurt by this, and I'm NOT COVERING.

Don't play the long side on this. The pros show up in the morning and they've seen this play before, and know how it ends.

Be the smart money or get killed.

Your choice, but there will be no further warnings from me, and lots of laughing when CFC's stock implodes.

Anonymous said...

In jail there are no tanning booths

Anonymous said...

BOA may have bought a proxy for their mortgages to illegal aliens.

Anonymous said...

They just asked about if BOA could short CFC on CNBC. You know that is what they did Guarantee win.

Anonymous said...

Ha! Say goodbye to your precious "correction" bear-babies. Look at the market this morning. BofA is saving the whole mortgage sector by bailing out countrywide, and the Fed will backstop anyone stepping in to save the mortgage market. Congress will bail out the flippers and the scammers and the subprimers and anyone else who can crawl to papa Fed's big cash-dripping teat.
The 'turmoil' is over, this bull run has shaken off all the whining about credit and next stop Dow 20k.

Anonymous said...

Yep, shotgun marriages are always kind of strange. Paulson is the best man, and Bernanke gave away the bride.

BTW HPers, how are those CFC puts doing today?

LOL - Dopes!

Anonymous said...


CFC is already back to where it was before the BAC deal was announced. Bully for the bears!

Anonymous said...

I own shares of both bofa and countrywide. Bought lots of it last week.

I am a happy man today.

Anonymous said...

Godzillo is on @ 11:00AM EST (08/23/07) with Maria Barfolomo on CNBC

Anonymous said...

this is kinda funny, my sister works for bofa and her husband just got a job with countrywide 2 weeks ago. she must be up to this.

Anonymous said...

bofa doesn't want to kill cw you idiots. it's not like jcpeenny going under will help sears. if cw goes under markets have a shit and bofa loses $5B in value the next day.

bofa would be happy to make $0, even lose a little to save cw and give the perception to the world that all is well with mortgage lenders

for once take your brain off conspiracy mode and think rationally

blogger said...

The market didn't buy it or Mozilo is dumping shares hard this morning

Harleydog said...

agree Keith, step up and buy stock Mozilo. Soft ball Maria never disappoints guaranteed the insider sales question was an interview breaker, the only irresponsible thing about the Merrill analyst is he didnt't yell fire sooner. He who panics first panics best.

Anonymous said...

"In my personal opinion, if you work for Countrywide, get ready to be laid off."

To all Country"doulble"wide employees:

You are ALL FIRED!!!!

HAHAHAHAHAHAHH How's that mortgage gonna get paid now? Adding MORE homes to the already SKY HIGH inventory.

Yeah, thats right, pay back is a bitch aint it?


Anonymous said...

"I own shares of both bofa and countrywide. Bought lots of it last week.

I am a happy man today. "

You wont be very happy by next week it is resumes it's downtrend.

Anonymous said...

keith said...

The market didn't buy it or Mozilo is dumping shares hard this morning

August 23, 2007 4:18 PM

HUH? CFC is up and BAC is up. I'd say the market bought it hook line and sinker

stuckinthecity said...

Anonymous said...
In jail there are no tanning booths

August 23, 2007 10:37 AM

Club Fed might have some....but he will have to beat back Lindsay Lohan!

joonjoon said...

You see what happened with cfc today? The market is spooked. Fear is here.

brokersleaveyoubroke said...

%25 of all subprime loans that CFC wrote are in some stage of default. CFC is obligated to buy back any mortgages that fail. They don't have a fraction of the cash needed to do that. CFC has other businesses that generate a good cash flow. If they file BK and erase their debts they could be a money making business again. Of course BoA will now own a big chunk of that business, which they bought for peanuts from a desperate CEO who spends way too much time under a tanning lamp.
And don't fault Mozilo for selling his stock, he's going to need that money for a face transplant when the skin cancer kicks in.

mark brickman said...

To the DOPE that BOUGHT CFC at $25 plus last night and this morning ..


Anonymous said...

CFC down 9% so far from the open

Mozilo selling after the pump?

Unknown said...

No. BoA proxies shorting the hell out of CFC today. Look at the volume. Retail buying would not be in the hundred of millions of shares traded so far today.

Anonymous said...

Anonymous said...

CFC down 9% so far from the open

Mozilo selling after the pump?

August 23, 2007 6:26 PM


Yeah but the open was 25% higher than yesterday's close Cletus

Anonymous said...


Bill Gross says Bush must bailout homeowners. He even used the "b"word.

So let's recap:

Gross says bailout
Hillary says bailout
Obama says bailout
Dodd says bailout
Cramer says bailout
everyone on CNBC says bailout
Wall St says bailout
Banks say bailout

Oh but Keith says no bailout.

I wonder who the powers that be will listen to?

Guess what renting bafoons, a bailout is coming. You lose yet again.


Anonymous said...

Man, that fuschia tie really brings all the orange together, doesn't it?

Anonymous said...

Went long on the puts this morning right before Moody's warning that CFC's debt could be downgraded to junk.

Sure is fun to capture paper gains of 30% in 10 minutes.

I agree with a previous commenter though -- we can make a little money playing around the options (and lose more than a little too), but the recession that this is heading towards will really hurt.

What to do with the 401K? What to do taxable captital gains? The wrong timing could be a huge mistake. Even long term 401K stuff could take years to recover.

I have to admit this popping bubble is affecting my investment inclinations (slow and steady, never time, etc.) in ways I never expected. Now I'm getting greedy about the options, and am more and more tempted to time long term stuff to protect it from a possible recession.

This is all getting a lot trickier than simply renting and shunning the debt for an artifically inflated house.

Trevor Cordes said...

Damn, I'm disappointed CFC didn't go to $26 as in the after-hours. I was ready to short that puppy at every $1 over $25 it hit. Looks like everyone else thought the same thing today after the after-hour traders got hosed.

Talk about a lame short squeeze. Barely a hiccup. Scary!

Anonymous said...

"I'm disappointed CFC didn't go to $26 as in the after-hours. I was ready to short that puppy at every $1 over $25 it hit."

All the financial options are now very, very expensive -- I got greedy and nabbed some before they climbed even higher, but if you want to see a bubble in prices, compare what these options are trading at to some "mark-to-model" calculators like Black-Scholes.

Then again, if CFC really tanks, every contract could be worth 1-2K, so maybe they're not so expensive even now. The beauty of options!

Anonymous said...

"Guess what renting bafoons, a bailout is coming. You lose yet again."

There's no way to bail them out. How? Drop the rate to 0%? Bernanke will not do that. What else, tell flippers that they can hold on to properties forever? Nobody trusts anybody in this market, so who exactly's going to lend money to new buyers who don't earn enough money to qualify for a loan? The party is over. Banks won't lend money to most people because they don't earn enough money to match current home prices. The only bailout is a huge iron ball chained to their ankles, if they choose to keep the keys. Bailout maybe for banks, which is already going on, but that won't help the consumer who are responsible for 3/4 of this f*cked economy.