January 11, 2008

Countrywide avoids bankruptcy as BofA pays $4 billion (in stock) for a $1 company, probably so they could avoid losing billions more


The US learned from the UK Northern Rock debacle and avoided a massive bank run by orchestrating BofA's $4 billion all-stock takeover of lowly Countrywide and its epitome of executive corruption and greed, Angelo Mozilo.

Now ask yourselves, why would BofA pay $1 for a company that would have gone bankrupt if they hadn't? True, it's at over 80% off vs. its high, but still why pay billions for a company worth nothing (at best)?

Hmmmm.....

Maybe because if Countrywide went bankrupt, it would have cost BofA more than $4 billion?

It'll be interesting if this deal actually goes through. It might just be BofA looking to prop up the value of CFC as they dump shares. But if BofA buys it and it closes, then THEY own the CFC toxic loans that NOBODY will buy and which have NO value on the open market. Can you say BofA write-down? And mark my words, this one will cost BofA CEO Kenneth Lewis his job, even though he'll be laughing all the way to the bank.

Bank of America saves Countrywide from bankruptcy

Bank of America has saved Countrywide, one of the major players in the sub-prime mortgage crisis, from bankruptcy.

It announced this morning that is has agreed to buy America's biggest mortgage lender for around $4bn (£2.05bn) in stock.

The lender is widely viewed as one of the main culprits behind America's sub-prime mortgage crisis. It was a leader in peddling loans to low-income home buyers and is under investigation by US prosecutors for allegedly misleading customers about repayment commitments.

37 comments:

Edgar said...

And mark my words, this one will cost BofA CEO Kenneth Lewis his job, even though he'll be laughing all the way to the bank...

The system works!

Anonymous said...

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saved in the nick of time!

Anonymous said...

CFC is trading at less than 20% of book. Today's "losses" are all on paper. Mark-to-market assumes the market has a rational view of the value of the debt - it's illiquid, so one really cannot appeal to efficient market theory here. At some point a lot of these losses could become "upside surprises" when a greater fraction of the loans are worked out, or the recoveries in foreclosure aren't as low as feared.

Shakster said...

My God that picture!Fwahahahahahahahahhahahhahaa!!!
Anyway,CFC is kaput,and all this shizzle going on is the cover up.

Anonymous said...

Keith,

Mish has a great article that might answer why BofA is buying this junk.

http://globaleconomicanalysis.blogspot.com/2008/01/countrywide-buyout-deal-greased-from.html


Danny

Anonymous said...

When you think about it, B of A buying Countrywide is like someone buying a house now - TRULY catching a falling knife...

This move will kill B of A. Mr. Giannini is rolling in his grave because he cannot believe corrupt and really stupid greedy idiots are runing his namesake company into the ground.

Let the trials begin for Mozilo and his crew. He can come to Calif to do his time, our Governor is about to spring thousands of "low" offenders early...

Make vacation plans today to visit the World's Largest Penal Colony, Kalifornia. Brsh up on your Sanish before your trip...

Exterminate your Realwhore.

Batman said...

Don't call this deal "done" until the signatures are on the paper folks. Let's wait and see just what is behind door number one before anybody starts calling country fried "saved".

There is plenty of time for nerves to get the groom at the alter, even with a shotgun at his head.

pimp hand said...

This kind of shady deal happens all the time with furniture stores, dollar stores, and hot tub "emporiums". Here's how it works: The buyer gets the assets, but the seller keeps the liabilities and the negative equity. Enough money changes hands to pay the lawyers, buy some blow for the previous owner, with a little left over so they can file BK.

This CFC/BoA deal is just a sideways bankruptcy with Uncle Sam playing the role of the sucker. BoA is not getting stuck with anything here, and I suspect there were numerous guarantees offered by Paulson and Bernanke to help the negotiations along.

Andrew Hac said...

The Americano is as toasted as a snapper turtle skewered on a stick from head to ass all sizzling, juices dripping, fat popping over a bed of white hot charcoal pit.

Americano = Grilled Snapper Turtle

Heeeee... Haaaaa... Arrrrr...

The mentality of the average Americano is just amazing, if not stupefying.

A Circuit City Sale Associate is able to buy a house.
A Shoe Sale Man is driving an Audi.
The Iraqi has Weapon Of Mass Destruction.

Talk about brain-dead zombie, uneducated crapper. Maybe that is the reason why there is such word as "Trailer White Trash"...

Anonymous said...

I love it, all of you HP fools were and are always hoping for a financial collapse and don't realize that on the other side, people are just as committed to keeping our economy afloat. Yet, you fools think the economy will collapse and yet it won't because our business leaders are proactive and the so called coming recession even if it comes will be a mild one just like the one from 2001 to 2003. So HP'ers keep hoping for a financial collapse while people like me laugh all the way to the bank.

happy homeowner in the stix said...

Look, it can't all be toxic junk in CFC's portfolio. 7% or so of the loans aren't getting paid....but the rest are. They're not all going to go into default.

And CFC does servicing for a lot of other mortgage companies, too. Their bit of commish on each payment is a nice little profit center.

There's got to be a few other little diamonds to be mined from it all, too.

It may not be as crazy as it sounds right now. But...have to admit....sure am happy I don't have any money of any kind in either company......

Anonymous said...

Bank of America buys Countryslime......

This one is so obvious....the plungers have thier hands all over this one....

Anonymous said...

Keith,

Check this out. Good article from Bloomberg. It seems that BofA is running risk of defaulting by taking over Slimeywide.

Lets just wait for BofA CEO to be fired soon. Not soon enough though. The damage is done.

Danny

Anonymous said...

Something big is coming down the pipe...another attack? Another bigger 911?

Anonymous said...

"when a greater fraction of the loans are worked out, or the recoveries in foreclosure aren't as low as feared"
-----------------------------------

or, when the government comes in and takes all these toxic loans, and transfers the costs/losses to all taxpayers. funny how you left that one out.

Anonymous said...

Yup. Just love the picture ...

borkafatty said...

ROTFLMFAO!!!!!!!!

fish said...

More on his orangeness from Minyanville!

http://www.minyanville.com/mvtv/?videoid=49&offset=0

Ed said...

Don't underestimate the coming bailout of mortgages. A lot of those worthless mortgages will be worth a hell of a lot once the government buys them at face value. I'm sure BofA knows something we all don't. Like oh I dunno, a $250B stimulus package aimed at saving home owners by buying up mortgages? The CEO of BofA is not about to spend $4B unless he knows it's a lock. He's not a stupid man.

Plus it is an election year. No way countrywide is allowed to go under. Maybe if this were happening in Jan 2007, but in 2008? No way.

A year from now this will be seen as a genius move by BofA.

debtisslavery.blogspot.com

tangelo mozilo said...

Countrywide just moved from "Ailing" to "Imploded" on the Implode-o-Meter!

Tilt.

sunnyvale said...

Anonymous said...
I love it, all of you HP fools were and are always hoping for a financial collapse and don't realize that on the other side, people are just as committed to keeping our economy afloat. Yet, you fools think the economy will collapse and yet it won't because our business leaders are proactive and the so called coming recession even if it comes will be a mild one just like the one from 2001 to 2003. So HP'ers keep hoping for a financial collapse while people like me laugh all the way to the bank.

My response: how funny, isn't the market down another 217 points. How many times this week was the dow down big? Wake up, America is heading into a recession and its not going to be pretty.

Jordan said...

Closed down my BoFA accounts last year.

Princess Mononoke said...

Oh MY GAWD! That photo and the others you posted today have me RLMAO! Thank you Keith! I can wake up to LAUGHTER everyday!!! :)

Anonymous said...

God Bless America!

Where else can you both loot & run a company into the ground and then collect $83mm as the door slams you in the a@@?

Princess Mononoke said...

Anonymous said...
>>>>>I love it, all of you HP fools were and are always hoping for a financial collapse and don't realize that on the other side, people are just as committed to keeping our economy afloat. So HP'ers keep hoping for a financial collapse while people like me laugh all the way to the bank.
January 11, 2008 4:20 PM
====================

So I suppose that is what you consider a good business model "keeping our economy afloat" on the basis of GREED, Corruption and Theft! Is this really how AMERICANS think now??!!?

That is truly UNBELIEVABLE to me! Whatever happend to Business ETHICS! oh I guess they don't teach that anymore...

More Transparency PLEASE!

swampcritter said...

When Mozillo pulls the rip cord on his golden parachute I hope it's full of pots and pans like Wylie Coyote's!!

Anonymous said...

I think the Goobermint will start buying the worthless paper from BofA over the next few years. Now who will buy WaMu? Supposedly JP Morgan. The same will happen there. They let the little fish fry and keep the big ones from blowing up.

Anonymous said...

Bank of America buying Countrywide and J P Morgan wanting to merge with Washington Mutual Unf@#king believable. That shows how this so called free market system works. These banks and lenders are bailing themseles out now and s#cking each other off.

Princess Mononoke said...

There is absolute NO Integrity in America!!!

************NONE!************

Thank you American Government, Thank you American Corporations, Thank you American Banks for teaching our new generation that it's okay to commit fraud, steal from your neighbor, mis-treat clients(customers)....

Thank you for teaching them that they will be REWARDED for this type of behavior!

~ Welcome to the America ~

Happy European said...

Anonymous said...
CFC is trading at less than 20% of book. Today's "losses" are all on paper. Mark-to-market assumes the market has a rational view of the value of the debt - it's illiquid, so one really cannot appeal to efficient market theory here. At some point a lot of these losses could become "upside surprises" when a greater fraction of the loans are worked out, or the recoveries in foreclosure aren't as low as feared.

January 11, 2008 3:44 PM

DOPES is finally back, commenting as anon... But his kind of reasoning gave him away...

Princess Mononoke said...

Anonymous said...
>>>>Something big is coming down the pipe...another attack? Another bigger 911?
January 11, 2008 5:04 PM

Yeah you better believe it, but it's NOT what you are referring to... It is OUR government, the Fed, Corporations allying intent on attacking us!

Prepare yourselves for a HUGE financial mortgage credit TSUNAMI wave coming our way...

Princess Mononoke said...

We have become a Sovereign NATION!

BigDaddy63 said...

So let's see if I missed something:

1. Mozillo cashes out of almost $1 BILLION in CFC stock while the stock craters.

2. Mozillo has the company buy back billions of CFC while he cashes out.

3. Mozillo is under SEC investigation.

4. CFC is under SEC investigatio.

5. CFC is subject of multiple lawsuits.

6. CFC loses 95% of its value and is on the verge of BK, having its major warehouse line cut off.

7. BOA bought 111 million shares at 18 and is losing about 1.5 billion of that in 3 months.

8. CFC admits to fabricating documents.

9. CFC has over 3.1 billion in REO's.

10. BAC could have bought the servicing in BK for pennies on the dollar.

11. Instead, BAC buys CFC for 4 billion, and Mozillo will get 115 million severance package.

Makes sense to me.

Dogtownsurfer said...

Well, first off, if I were Ken Lewis, the CEO of B of A, my negotiations would start out like this: (AM = Angelo Mozillo, CEO Countrywide; KL = Ken Lewis, CEO B of A)

Angelo Mazillo, in all of his peacock splendor, struts into the Tower Club in Ken Lewis’ Bank of America HQ in Charlotte. Angelo walks in, extends his hand, expecting – no, needing - a handshake and is met, instead, by a blank stare from Ken Lewis; no movement at all, looking every bit the role of Chairman and CEO, Bank of America.

The look of silence on his old pal, Ken, is a bit disconcerting to Angelo.

AM: Ken, I am so glad that you could take the time to meet me, I know it's been a tough few months for all of us in the financial markets.

KL: Some of us have had it rougher than others, though, eh, Angie?

AM: It's Angelo, not "Angie"

KL: I know, I just want to make sure that you know you're my bitch now.

AM: WHAT???? Fuck you, asshole! This conversation is over!

KL: Angie...sit down

AM: Fuck you, asshole! My name is ANGELO!

KL: ANGELO? Same as Angie, what the fuck?

AM: I told you - ANGELO!

KL: OK, ok...but sit the....fuck....down. Angelo.

AM: OK. But don't you call me that...chicks' name....again...ever. It is NOT cool.

KL: Cool? Is that what you want to talk to me about, Angelo? Cool? How cool was it when you came to me three months ago - BEGGING - no, pleading - on your fucking knees, and swore to me that 2B would tide you over, and I helped you out, and now, because of you, I have to show a realized loss of 1.2B on my books? How fucking "cool" is that, ANGELO?"

AM: Look, I'm sorry, OK? I never knew it was this bad. Shit, these goddamn people won't pay their fucking mortgages, for Chrissake's! What the hell am I supposed to do? I mean, what the fuck is wrong with these people? Who the HELL doesn't pay their bills?

KL: I don't know, Angelo, but I do know this: without me you are totally FUCKED.

AM: Huh?

KL: What, did your tan affect your ears? YOU ARE FUCKED.

AM: Oh, you know what Ken? Screw this, I am outta here.

KL: Walk out that door and I call in that 2 Billion 7.25% preferred issue tomorrow.

AM: You wouldn't!

KL: You're GODDAMNED right I would! And guess who they'll come after when Countrywide can't pay, Angie? Not me - no, compared to you I'm an angel. Hell, I even tried to keep you afloat. But you wouldn't listen - no, you just kept on doing the same thing, over and over and over again.

AM: Bullshit!

KL: Really? You think so? Well, why not ask Bernie Ebbers? He's doing 30 to life, or so I hear. And if he's not available, maybe you could talk to Jeff Skilling of Enron. Word has it that he makes a mean batch of brownies in the prison kitchen, provided he can get enough dudes to jack off in the batter to make up for the lack of natural animal fats. Personally, I think that'd make 'em chewy, but hey, nobody said the joint was going to be easy.

AM: Sobbing now, head in hands. Losing control in the face of all that is in front of him.

KL: Don't cry, Angelo - one guy beat the rap - maybe you could try what he did.

AM: Yeah? Who the fuck was that?

KL: Ken Lay

AM: Starts sobbing harder.

KL: Angie, Angie - take it easy. It's not all bad. Here, let me get you a drink. (Waves to waiter)

Waiter: Sir?

KL: Get me a Laphroaig, neat. And for you, Angie?

AM: Pink Lady.

Curious glances exchanged.......

AM: Oh, excuse me - I meant a DOUBLE pink lady, you assholes!

The waiter leaves. As the two CEOs wait Angelo sobs quietly into his hands while Ken nonchalantly picks his teeth with a toothpick. He is unworried.

The drinks arrive.

KL: Well, I guess we should drink to the occasion, wouldn't you say so, Angie?

AM: What occasion?

KL: Why, you selling me Countrywide.

AM: Have you lost your mind? No way, fat boy - it's mine and I intend to keep it.

KL: You don't mean that, Angie. Think about your position - you can't possibly win.

AM: What the fuck do you mean?

KL: I mean, and I'll talk slowly so even you can understand...you ...are ..finished.

AM: Puts his drink down, makes a move to get up….

KL: Angelo…ANGELO! Hey, it’s me, Ken, OK? Same guy who bailed you out a couple months ago, and now it's payback time.

Angelo, dejected, resigned to his fate, sits down.

AM: How much?

KL: I'm thinking $4, maybe $4.50 a share.

AM: Are you kidding me? That's what, 2.6B? We had a market cap of 100B less than a year ago!

KL: I know. It's quite a fall, isn't it? You really, really fucked it up.

AM: What's my end?

KL: 45M, no negotiating.

AM: 45M? Really?

KL: Sure, Angelo, I want us to stay friends.

AM: You know, now that I think of it, I think I could live on 45M. This actually isn't that bad a deal after all.

KL: I thought you'd see it my way. Now how soon can we cram this down your board's throat?

AM: Are you kidding me? Who do you think approved all the crazy shit we've been doing the last 5 years? Give me thirty minutes and it's done.

Angelo walks out to use the phone as Ken Lewis leans back, gazes out the window and chuckles under his breath, thrilled with the fact that he just screwed the worlds biggest mortgage company away from the shark, Angelo Mozillo.

His last thought as Angelo walks back into the room is that he sure hopes this 4B works out better than the 2B he spent in September. If it doesn't he wonders who it is that will administer his screwing.........

LoneLibertarian said...

BofA buys it and chops it down into nothing and uses it as a tax writeoff.

4.1 billion? That is not a lot of "bad mortgages" at 400,000 a pop.

Adam Slowhand said...

Methinks the American new-age version of the "invisible hand", known as the Presidential Financial Working Group (or PPT, for Plunge Protection Team) has deemed CFC as "too big to fail". CFC cannot fail, just as some outfit like Bank of America cannot fail, otherwise the public would panic to the level desired by Keith et al.

So what happens if CFC is prevented from failing, by virtue of being bought-out by B of A? Everyone saves face: Kenneth Lewis seemingly throws good money after bad, but it buys him more time. Bernanke doesn't have to cut interest rates as steeply as demanded by some, and the "invisible hand" of the PPP operates outside the spotlight, with funds tunneled to B of A.

Finally, Mozilo walks away into the sunset, having sold all his stock over the past few years, not to mention with that lucrative golden parachute retirement plan.

Think of the alternative:

CFC goes BK, and B of A risks following suit; panic ensues, and the Fed feels compelled to steeply cut rates (toasting the dollar).

Public failure WOULD be more costly to everyone, as it would accelerate the great unwinding, plunging us into a deeper depression vs a mild recession.

Daniel (the other one) said...

CFC is just the gift that keeps on giving. First we short them from $40 to $6. And just when it looks like they've got no more to give, BofA volunteers to swallow the toxic CFC pill. Do they not see the massive wave of lawsuits against CFC that has hardly even begun?

So now (assuming the deal goes through, which seems almost too good to be true) we get to ride BAC down from $40 to $6 (or $0) too?

Somebody pinch me.