The buyout of Countrywide Financial by Bank of America has officially occurred, bringing an end to the struggle between the two lenders and a close to the long saga of the once-powerful mortgage lender Countrywide.
Bank of America Corp. will buy Countrywide Financial Corp., the home lender battered by the collapse of the subprime mortgage market, for about $2.5 billion, 37 percent less than originally planned.
The second-biggest U.S. bank by market value agreed in January to acquire Countrywide for $4 billion in stock amid speculation the Calabasas, California-based home lender might go bankrupt. The price declined as foreclosures rose to a record and shares of both companies dropped. Bank of America fell 21 percent in New York Stock Exchange trading during the past two weeks.
Countrywide began to spiral out of control in 2006 even as the credit bubble was still inflating. Things seemed to go as badly as they could for the lender right to the bitter end. The deal that was to have paid Countrywide $4B when announced January 11, ended up paying about $2.5B after BofA’s stock price crashed from $38.50 to Monday’s closing price of $23.87.
But as Countrywide implodes, its legal troubles explode right through Bank of America’s doors:
As shareholders were preparing to approve the deal on June 25, California and Illinois sued the lender for allegedly luring borrowers into risky loans they couldn’t afford.
Washington Governor Christine Gregoire announced plans to fine Countrywide for alleged discrimination against minority borrowers and asked that the company’s license to lend in the state be revoked. Florida Attorney General Bill McCollum sued Countrywide yesterday for allegedly deceiving customers.
Countrywide’s financial problems are just as serious:
In late April, Countrywide reported a first-quarter net loss of $893 million, or $1.60 per diluted share. In the same period last year, it posted a profit of $434 million, or 72 cents per diluted share.
The company’s provision for loan losses rose to $1.5 billion from $152 million a year earlier. Residential charge-offs, or loans written off as not being paid, grew to $606 million in the latest quarter from $39 million in the year-prior period.
Analysts think those losses are bound to mount as more borrowers default on their home loans.
Actually, analysts are just about certain of mounting losses due to increasing defaults on home loans, and Bank of America announced that it will cut 7,500 jobs in efforts to eliminate overlap. They can try that line all they want, but it’s really to cut costs and make room for the extra baggage called Countrywide.
Shotgun wedding or not, Bank of America made the bed it lies in; for the house that Mozilo built and gutted, there are no tomorrows. The lender’s legacy will be one of unbridled greed and sociopathic disregard for others:
Although Mozilo helped build the company from the ground up, his credibility as a manager who thought like an owner was questioned on more than one occasion. I understand not everyone can bring Warren Buffett-style honesty to the table, but when a CEO takes a $48 million salary in the same year the company falls flat on its face, you’ve got to question whose priorities are being put first. Throw in some questionable political connections in what employees dubbed “Friends of Angelo,” and an accidentally leaked email showing slim regards for homeowners staring at a mortgage meltdown, and you’ve got some management mayhem on your hands.
So, Countrywide, we bid you good riddance.