Fred Business News - Time will tell if Bank of America's purchase of Countrywide Financial Corp. winds up being a bargain or a boondoggle.
Shareholders of the troubled mortgage lender approved Bank of America's (BAC, Fortune 500) all-stock offer by a majority vote Wednesday, removing the final hurdle to the deal and ending Countrywide's days as an independent. Countrywide said it expected the deal to close on July 1.
But lately, some analysts have suggested that Bank of America may suffer a classic case of buyer's remorse once it absorbs Countrywide's $95 billion loan portfolio.
Last week, equity analysts at Standard & Poor's slashed their rating of Bank of America stock to "sell" from "hold." They fear the Charlotte, N.C.-based bank may be underestimating the impact of rising consumer defaults and delinquencies at Countrywide, especially with option adjustable rate mortgages (ARM).
Last month, Paul Miller, an analyst with Friedman, Billings, Ramsey & Co., warned that Bank of America's purchase could prompt it to take anywhere between $20 billion to $30 billion in writedowns.
"BAC [Bank of America] should completely walk away from the CFC [Countrywide] deal, as CFC's loan portfolio will prove a drag on earnings and could force BAC to raise additional capital," Miller wrote in a note.
Countrywide, the nation's largest mortgage lender, was struggling in the months leading up to the deal's completion. The company reported losses in its last three quarters due to soaring mortgage delinquencies and defaults by borrowers. The stock plunged from about $30 per share last August to less than $6 a share just before BofA announced the deal.
Source; Cnn.com
About Fred: Fred is president of The I Team Organization. With a back ground in agriculture Fred has lead many successful business ventures.
