Countrywide Takeover By BoA Would Make Sense 16 comments
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Countrywide (CFC) shares are up over 50% today as the WSJ reports the company might be taken over by Bank of America (BAC).
You gotta love the WSJ's hedging:
It isn't clear how quickly a deal might be struck, but two people familiar with the matter said it could occur very soon. It also is possible that an agreement could be delayed or fall apart altogether.
It's also worth checking out the NYSE press release:
In view of the unusual market activity in the company's stock, the Exchange has contacted the company and requested that the company issue a public statement indicating whether there are any corporate developments which may explain the unusual activity.
The company declined to comment.
They're probably so stunned their stock is going up rather than down that they have no idea what else to do.
It would make sense for BofA to buy Countrywide: the Charlotte bank has deep enough pockets to be able to sustain any last losses that might still be lurking in Countrywide's portfolio, and by buying Countrywide at a steep discount it would get very cheap market share in the mortgage business.
What's more, Countrywide has big liquidity problems, which would be solved at a stroke if it was bought by BofA. That alone justifies today's share-price hike.
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This article has 16 comments:
I don't want to buy a company because it is going bankrupt and I can sustain the losses, I want to buy a company because I can make money. How exactly does this benefit BAC? That it benefits CFC is a given.
1. BAC gets CFC at a "discount" to what? CFC "true" value, "book" value, what metric is that discount calculated against?
2. Wouldn't BAC get a big chunk of market share anyway if CFC failed?
Your commentary is weak and unsubstantiated.
For crying out loud, if you don't know the extent of the lurking losses, you have no idea whether BofA can sustain it, or more importantly of whether it would make sense for them to.
Do you have any rationalized beliefs about the value of the company ? Or does it just make sense because it does ?
Johnny.
If they can get the lucrative servicing business for bankruptcy prices, it might be a great deal
Yeah, trust Felix on this.
LMAO!
I can only speculate on three things. First, as NoFate suggests the Fed is lurking here. It is hard to imagine that after getting burned the first time that BofA wants to double down without that kind of "backstop." But, who knows we have all seen large companies do really stupid things.
Two..maybe with their investment BofA got a really good look at the "muck" on the balance sheet and have convinced themselves that they know what is there and they know the "real value."
That is the only good scenario..well so long as they got it right. But in talking to many people about the sub-prime mess the one thing I hear from very knowledgeable people is that NO ONE can price these "assets" at this time. I do not know what would make BofA smarter than the type of people that thought this crap up....but who knows.
Another thought is that if BofA is not "too big to fail" now...it sure as heck will be after this acquisition. So its like being lost in the woods and gorging on poison toad stools in the hope that you will be so poisonous that no bear would ever eat you. So if you are the CEO and are worried you say to yourself...hey I know how to make it impossible for the Fed to let us go down....
Overall...it looks like rearranging the deck chairs and not much else.