January 10, 2008

BofA Countrywide deal

Fortune Magazine has presented this prospective on the deal, which I think is valid. BofA has always wanted to buy Countrywide to boost its mortgage origination business but Countrywide was flying high in their valuation, which would not stop BofA anyways as it has a reputation for overpaying. The credit crises has presented a good price for BofA but and it is big but how much losses on the books of Countrywide.

Here is parts of the article:

... Bank of America would utterly dominate U.S. residential real estate finance. The newly combined Bank of America, based on MortgageDaily.com 2007 third quarter origination numbers, would have originated $142 billion in mortgage and home-equity financings. The next closest: Wells Fargo at $68 billion.

... For Bank of America the cost savings inherent in combining Countrywide's market-leading residential lending platform with its own fourth-place effort are no doubt tempting. The bank would also pick up millions of customers - as well as thousands of depositors from Countrywide's own bank - to peddle a variety of higher-margin personal finance offerings. It would also, presumably, bail out the $2 billion investment Bank of America made in the lender in August. Prior to the news, the bank was out a cool $1.4 billion on the trade.


MG said...

The more i think about this deal the more it makes sense long term and seem like a really cheap way to grow.

Obviously the write offs are a risk, but once they get past them, this should pan out to bring more banking business and more scale on the mortgage side.

Sami said...

I agree. you will get a lot of skeptics now that it is throwing good money after bad but it is a bold move that can pay off tremendously for BofA growth.