Wachovia Halts Wholesale Mortgages; Bank of America Won't Guarantee Countryside Debt

There are two important financial headlines this evening and the futures are solidly red. Let's take a look at news regarding Wachovia and Bank of America starting with the former.

Wachovia Halts Wholesale Mortgages

Wachovia mortgage unit halting loans via brokers.

Wachovia Corp (WB), the fourth-largest U.S. bank, on Monday said its main mortgage unit will stop offering home loans through brokers this week, joining a growing number of lenders to curb wholesale lending.

"We thought it was important to focus on customers who have relationships with the bank, and in geographies where Wachovia has branches," spokesman Don Vecchiarello said. "Based on that, we've decided to discontinue doing business through our wholesale mortgage channel as of July 25."

Wachovia is assessing how many jobs will be affected by the decision, Vecchiarello said.

The Mortgage Lender

Implode-O-Meter

had this news headline up, hours before mainstream media reports.

Earlier today Bloomberg reported

Bank of America Earnings Drop Less Than Estimates

.

Bank of America Corp., the biggest U.S. consumer bank and home lender, said second-quarter profit fell less than analysts estimated and predicted the purchase of Countrywide Financial Corp. will add to earnings this year.

The bank said Countrywide will add to profit this year, and that cost savings will be "significantly" more than the $670 million projected in January.

Inquiring minds who have been pondering the question "How the hell can Countrywide add to Bank of America earnings?" now have their answer.

Bank of America Will Not Guarantee Countrywide Debt

From Bloomberg in May:

The $4 billion purchase of Countrywide is scheduled to close in the third quarter. Investors have speculated Bank of America may seek a lower price or cancel the deal because U.S. home prices and sales have deteriorated.

Fraudulent Conveyance?

Naked Capitalism is talking about fraudulent conveyance in

Bank of America's Scheme to Stiff Countrywide Bondholders

.

I am wondering how much taxpayers will be asked to foot the bill for this fiasco. I am afraid we all know the answer.

Comments

[What a joke!!!:]

You didn't even correctly type the name "Countrywide" in this title. The reporting goes downhill from there.

Why would company that purchases the stock of another company "guarantee" its obligations if not legally required to do so? If I buy 100% of the stock of XYZ company, am I supposed to personally guarantee all of its debt? Of course not.

Today BAC CEO Ken Lewis said during the earnings call "we understand the ramifications of not honoring Countrywide's debt." Those ramifications would include BAC never issuing debt again, endless litigation by stiffed creditors and, of course, never acquiring a company again.

Please consider all the facts. Thank you.

2008 Jul 21 11:37 PM

[sluggger222:]

It seems to me that dropping brokerage lenders is a great way to gain market share in a falling market. You stop funding the competition, and guarantee a larger piece of the pie for yourself.

So, what looks on the surface like a panic move, and revenue loser, is actually a long term revenue gain. The same number of people are going to be seeking out mortgage loans, but now WB can approach them directly with less competition from the brokerage houses they were lending money to.

It worked for Wells Fargo. Hopefully it is not too late for Wachovia.

2008 Jul 22 05:30 AM

[Neitherabor...:]

Wachovia may not have been supporting the credit brokers as they may have been doing business in areas outside the bank's footprint. Wachovia, in general, appears to want to stop providing credit to non-depositors. If they are making money off you in deposits, they'll be willing to make more money off you in extending credits.

2008 Jul 22 08:39 AM

[lawbert:]

The writer quoted news back in May. Gotta look at the recent ones: BofA seen likely to honor Countrywide's debt.
www.cnbc.com/id/256101...

2008 Jul 22 02:34 PM