billddrummer

An Involuntary Transaction: Why BAC + CFC May Never Close

Interesting and compelling analysis.

BAC made their bid just when CFC was being denied access to its warehouse lines for loan fundings. In a sense, the impending wholesale cancellation of funding vehicles thrust the two together in a shotgun marriage--not unlike JPMorgan and BearStearns. With the memories of that weekend receding into the distance, and the very real possiblity that counterparty risk with CFC could run into many hundreds of millions of dollars (CFC issued MBSs on newly funded mortgages, and was a net seller of them in the secondary market, one reason their profits were so high in 2002-2005), that the prospect of further litigation costs without the bank division as a backstop would drive the net value below $0.

The only piece of the company with any post-breakup value seems to be the servicing division, but it's been burdened with additional costs arising from beefing up the loss mitigation units in a futile attempt to 'help distressed homeowners.' So the go-forward value of that division has been impaired as well.

An interesting series of events. It will be fun to see who is left standing, and who's left holding the worthless assets.