Will Bank of America Scuttle the Countrywide Deal?
Right now, Bank of America (BAC) might be considering extricating itself from its deal to buy Countrywide (CFC). The fact of the matter is that homeowners aren’t the only ones dealing with negative equity right now. Countrywide has reached a point where its portfolio — in terms of loans — has such a low value that it has gone negative. And Bank of America can’t ignore that.
Countrywide is very exposed in terms of subprime mortgage loans, due to the fact that it is the largest of the U.S. mortgage lenders. That means that it also has a large proportion of the subprime mortgage loans, making things especially difficult for Countrywide right now. Especially since there are signs that Bank of America may be reconsidering.
Bank of America may not walk away completely, though. Instead, the company may decide to re-negotiate how Countrywide’s debt will be treated in the $4 billion deal. Bank of America is still affirming that it will take care of the debt acquired from Countrywide in the deal, but some analysts are wondering how the structure will play out. As a result, reports Reuters, Fitch Ratings is considering its next move with regard to Countrywide:
Fitch said it may cut Countrywide debt into junk territory if Bank of America does not fully support the mortgage lender’s debt after the acquisition.
Countrywide’s ratings may also be equalized with Bank of America’s “AA” rating, the third highest investment grade, depending on the deal’s structure, Fitch added.
This is just one more sign of where the U.S. economy is headed overall.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss.
Tags: Countrywide deal, Bank of America, home mortgage loan, subprime mortgage,
mortgage lenders, mortgage loan blog, BAC
September 15th, 2008 at 11:43 am
[…] Even as Lehman Brothers files for bankruptcy, Bank of America has turned its sights on Merrill Lynch, buying it out for close to $50 billion. Bank of America has, indeed, created a reputation for itself as a kind of savior, especially since its earlier acquisition of embattled mortgage lender Countrywide. […]