Countrywide (CFC) in trouble, merger talks and rumors - it kinda reminds me of Northern Rock (NHRKF.PK). Lots of empty promises and we will finish with a nationalized bank, maybe the RTC again.
Bank of America (BAC) has forgotten the $51 billion dollars of advances Countrywide has with the Federal Home Loan Bank of Atlanta. (Search for "countrywide" in this SEC filing for FHLB Atlanta). For Bank of America to even consider taking on debt of such magnitude is nonsense. Bank of America would need to buy $25,000,000 worth of stock in the Federal Home Loan Bank of Atlanta to join and purchase an additional amount of stock representing 4.5% of Countrywide's total advances with the FHLB of Atlanta (25,000,000 + (0.045 x $51,000,000,000) = $2,320,000,000).
Why is this worrisome... The recent implosion of the Federal Home Loan Bank of Chicago has left several member institutions with large amounts of membership stock but no dividends! Essentially they are waiting in line to get back their membership fee. Previously, the nice feature of joining the FHLB was receiving interest in the form of dividends on your membership stockholdings at the FHLB.
Currently, Bank of America is one of the largest members of the Federal Home Loan Bank of Boston. Their capital stock outstanding is at $854,657,000, composing 27.7% of the total stock for the FHLB of Boston. (Search for "bank of america" in this SEC filing for FHLB Boston)
There is a chance many FHLBs will not be able to pay dividends on their membership shares. It is very possible, Bank of America will have somewhere between $3 billion - 3.5 billion dollars worth of memebership stockholdings at various FHLBs without receieving any dividend payments...
By the way, should Bank of America be reading this, you might as well speed up your application to the FHLB of Atlanta. Here is the link. The FHLB of Atlanta will have their heads up after the Federal Reserve approves.
Here are some helpful documents on mergers/acquistion of FHLB member banks.
Disclosure: Author has a short position in BAC
