Will BofA Really Buy Countrywide?

Includes: BAC, CFC
by: Richard Shinnick

Marketwatch reports that Bank of America's (NYSE:BAC) acquisition of Countrywide Financial (CFC) is proceeding as planned, according to a statement issued by Bank of America yesterday. Apparently this deal will proceed despite extreme and accelerating problems with Countrywide’s mortgage portfolio.

According to the 10-K filed on February 29th, and as reported by Marketwatch, Countrywide’s 90-day delinquency rates in its $28.42 billion adjustable rate mortgage portfolio climbed more than 900% from a year earlier, up to 5.4% from 0.6% during the same period last year. Also, 71% of its ARM borrowers are making only the minimum payment allowed, and 80% of those loans had not required borrowers to verify their income prior to receiving funding.


Over 20 years of operating a business, I have made some bad decisions. The process with respect to bad decisions usually went as follows:

Stage 1: Investigative Stage: Investigate subject matter of the decision

Stage 2: Decision-Making Stage: Decide that the decision is a good decision

Stage 3: Implementation Stage: Move forward with the plan

Stage 4: Reevaluation Stage: See the plan is working and if the underlying premise holds.Stage 5: Stubbornness Stage: Ignore negative information and stubbornly forge ahead refusing to accept my mistake

Stage 6: Worrying Stage: Begin losing sleep and face continued stress and worry that I am getting in too deep

Stage 7: Epiphany Stage: Finally decide, “Screw it, I messed up, I don’t need this headache”

Stage 8: Unwinding Stage: Get rid of the problem as fast and efficiently as possible. Take the losses.

Stage 9: Moving On Stage: “Whew, I am glad I made that decision, what a relief!”


Mr. Lewis, or may I call you Ken? You are at the top of your game here. You are the leader of arguably the nation’s most successful banking institution. Unless you haven’t been completely forthright, you and your fellow managers have largely steered clear of most of the major destructive problems facing many of your competitors. You won! Why are you taking this risk? You have seen what this mortgage debacle has done to your competitors. Did you see what just happened to Thornburg (TMA)? Why are you saving Countrywide? Why take this risk? You can build your own national mortgage network! In fact, you already have one! Why do you need this? What are you thinking?

Actually, I know what you are thinking. You are probably somewhere between Stage 5 and Stage 6 right now, or maybe you are in full blown Stage 6? I feel your pain! Let me tell you, I think you are going to get to Stage 9. I have so much faith in you to get there that I bought your stock today. The sooner you do it, the less sleep you will lose and the sooner you can move on.

Best of luck.

Disclosure: Author has a long position in BAC