No Moss

Countrywide: Potential Short Squeeze in the Offing

I have a small position in BAC that is, of course, under water. I'm also skeptical about the short-term wisdom of buying CFC. That said, I think the long-term prospects for BAC are excellent. They are focusing on being a retail bank, and I think that will be rewarded.

In the long run, the CFC purchase will be accretive to business, increasiong the bank's revenue from mortgage originations and mortgage servicing, but more importantly, funneling new mortgage loan business into BAC, with new bank accounts following. I mean, you'll get some sort of discount from BAC if you have your bank account there. Bank deposits = cheap money plus additional service revenue.

It's one way to get around that 10% cap.

Absorbing CFC would seem to require either selling some of that China Construction Bank stock, further diluting BAC stock, or cutting the dividend. We'll know the results of all this by year end, after we get a couple of quarters of writeoffs behind us.

Who knows, the economy could come riding to the rescue and make Ken Lewis look like a genius. Stranger things have happened.