Bank Of America And Countrywide: "It Was The Worst Deal In the History Of American Finance, Hands Down!"
WSJ Video - Behind the Numbers on BofA and Countrywide
At one time Bank of America's megalomaniacal CEO Ken Lewis thought he was picking up Countrywide Financial for the bargain price of $2.5 billion. Now with BofA's stock down approximately 70% since the takeover was struck in the Summer of 2008, the WSJ reports the deal has cost BofA $40 billion, and still counting.
"Obviously, there aren't many days when I get up and think positively about the Countrywide transaction," Mr. Moynihan said in August 2011.
"It is the worst deal in the history of American finance," said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. "Hands down."
The total costs from Countrywide to date, according to people close to the bank, include $34.5 billion chewed up by a combination of consumer real-estate losses since mid-2008 and funds set aside to pay back investors who allege Countrywide wasn't honest about the quality of mortgage-backed securities it issued before the crisis. Additional legal costs from various settlements with federal and state agencies and the initial Countrywide purchase amount push total costs over $40 billion, these people said.
And the tally could go higher.
Bank of America, like all insolvent TBTF banks is required to submit a 'living will' to regulators. Those plans are due by Monday.
Here, in an invoice no M&A professional should ever want duplicated, is how Countrywide has cost BofA more than $40 billion:
$2 billion – Amount BofA paid for minority stake in Countrywide in August 2007.
$2.5 billion – Amount BofA agreed to pay to buy the whole company in January 2008.
$40+ billion – Total real estate losses, settlements with government agencies and amounts pledged to investors who purchased poor-performing Countrywide mortgage backed securities.
$67.5 million – BofA paid more than half of the settlement of a government fraud suit targeting former Countrywide CEO Angelo Mozilo in 2010.
$5 billion – Possible future losses that could be attributed to Countrywide.
68% – Drop in Bank of America’s share price since the Countrywide deal closed.