BofA May Renegotiate CFC Purchase

Here is a very interesting piece of analysis from Paul Jackson at Housing Wire. Given BofA’s recent announcement that it likely would not take on any of Countrywide’s outstanding debt many analysts are speculating that this could be first step towards BofA renegotiating its deal to purchase Countrywide or just walking away.

FBR analyst Paul Miler said in a note to clients this week that he believes BofA will renegotiate the purchase price to between $0 and $2 a share since he now believes that CFC’s loan portfolio has deteriorated so much that it currently has negative equity.

S&P cut CFC’s credit rating to junk after BofA said it would not may not support $24bn of CFC’s debt once the merger is complete. Here is an interesting quote from Miller reported by Reuters: “We believe Countrywide has significant credit risk on its balance sheet, not only in its loan portfolio, but in its subprime and HELOC securities and residuals, its representations and warranties on loans sold, and in loans held outside of banking operations.”

Jackson reports that CFC held $28 billion of option ARMs, $14 billion in HELOCs, $20 billion in second liens, and $19 billion of hybrid ARMs at the end of the first quarter.

Comments

[The Sluce:]

First of all, BofA never said that it "likely" wouldn't take on any of CFCs debt but that they just hadn't made a decision on what they were going to do. Secondly, BofA came out yesterday (5/5/08) and reiterated that they are indeed going through with the CFC purchase as planned. Granted the 3rd quarter is a long way away but this deal looks fairly solid.

2008 May 06 10:37 AM

[WAKEUP:]

Even BofA's pockets are not deep enough to fix Countrywide. We're back to Square One, with this monstrous situation. There was always going to be an almost unbelievable loss coming, due to Countrywide's foolishly greedy business practices. That loss is still coming. Everybody involved in this charade is simply trying to delay the consequences until after the election.

2008 May 06 01:44 PM

[william of ...:]

i continue to be amazed at cfc's shares traded -- monday's volume was in the upper 20 million shares. who is buying all this stuff? and why?

2008 May 06 03:06 PM

[william of ...:]

correction: cfc's monday trade volume was upper 70 million.

2008 May 06 03:12 PM