Bank of America, the 2nd largest bank in the U.S., should bail out on its takeover of Countrywide Financial because the home lender’s mortgages may be written down by as much as $30 billion according to Friedman, Billings, Ramsey & Company.
Analyst Paul Miller cut his rating on Countrywide to “underperform” from “market perform” and lowered his price target to $2 a share from $7, according to a note today from the Arlington, Virginia-based company. “Bank of America should completely walk away from the Countrywide deal, as Countrywide’s loan portfolio will prove a drag on earnings and could force Bank of America to raise additional capital,” Miller wrote.
Countrywide’s Home Loans credit rating was reduced to junk on May 2 by Standard & Poor’s, which cited doubt about whether Bank of America will back the mortgage lender’s debt after a pending takeover. The action squelched expectations among bond owners that their holdings would become more secure after Bank of America buys Countrywide, and raised questions about whether the $4 billion stock-swap will be completed. Countrywide dropped 69 cents, or 12 percent, to $5.29 at 10:44 a.m. in New York Stock Exchange composite trading. Bank of America fell 53 cents to $39.26.
Quarterly Losses
Bank of America agreed in January to buy Calabasas, California-based Countrywide and has named the lender’s president, David Sambol to run the companies’ combined mortgage businesses. Countrywide posted an $893 million deficit in the first quarter, its third straight quarterly loss, because of rising losses on its loan portfolio.
Bank of America considered likely declines in home prices and risks from lawsuits when it decided to make the purchase, Chief Executive Officer Kenneth Lewis said at the company’s April 23 annual meeting. Several investors asked him to reverse the Countrywide purchase at that meeting.
“Countrywide’s loan portfolio has deteriorated so rapidly that Countrywide currently has negative equity and the acquisition will be a drag on Bank of America’s earnings,” Miller said in today’s report.
Bank of America in an April 30 regulatory filing said it may not guarantee $38.1 billion of Countrywide’s debt, fueling speculation that bondholders face a higher risk of default. “There is no assurance that any such debt would be redeemed, assumed or guaranteed,” the bank said, adding that no decision had been reached.
At Home Loan Wholesale, Countrywide has always been one of our favorite mortgage lenders. They have always provided good loan products to brokers and lenders and their underiting systems have always been very efficient.
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Home Loan Wholesale Mortgage Analysts Say Bank of America Write-Off Bank of America, the 2nd largest bank in the U.S., should bail out on its takeover of Countrywide Financial because the lender’s home mortgages may be written down by as much [...]
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