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Friday, January 11, 2008

Bank of America buys Countrywide for $4 Billion

Items of interest:

Bank of America buys Countrywide for $4 BillionBloomberg:
Bank of America to Acquire Countrywide for $4 Billion -- Bank of America Corp., the biggest U.S. bank by market value, agreed to buy Countrywide Financial Corp. for about $4 billion, taking over the biggest mortgage lender during the worst housing slump in more than two decades.

Bank of America will acquire Countrywide for about $7.16 a share in stock, the Charlotte, North Carolina-based company said in a statement today. The offer is 7.6 percent below Countrywide's closing price on the New York Stock Exchange, and the stock fell 17 percent today at 10:21 a.m. to $6.43. Bank of America declined 56 cents, or 1.4 percent, to $38.74.

``I hope Bank of America isn't throwing good money after bad,'' said Eric Schopf, a fund manager at Baltimore-based Hardesty Capital Management LLC, which owns 216,000 Bank of America shares, in a Bloomberg TV interview. ``They struck a deal that wasn't very attractive. Hopefully they can get it right the second time around.'' [...]

Barry Ritholtz / The Big Picture:
Are Bankers Incompetant Morons? -- ...
We bankers are idiots, we can't do basic math, have little in the way of risk management. Lobbying for FASB rule changes is the only way we can cope. Also, our investors may likely be idiots also.
Merrill Writedown Drops Holders' Equity Below -- Merrill Lynch & Co.'s fourth-quarter writedown, estimated by analysts to be at least $10 billion, would shrink shareholders' equity to 12 percent less than Goldman Sachs Group Inc.'s.

Just two years ago, Merrill's shareholders' equity -- the firm's assets minus liabilities -- was on par with Goldman's, data compiled by Bloomberg show. Now, Merrill's weakened financial position compared with its more-profitable rival is forcing the world's largest brokerage to seek cash infusions from outside investors, slash bonuses and sell assets.

The fourth-quarter charges, the largest in the New York- based firm's 94-year history, would compound the $8.4 billion of writedowns from the prior quarter that led to a $2.2 billion net loss. Merrill Chief Executive Officer John Thain, the former head of the New York Stock Exchange and ex-Goldman president, is faced with a capital shortage even as Goldman, the biggest U.S. securities firm, gets stronger. [...]
Economist: Only Panglossians think that the financial sector is over the worstEconomist:
Banks and the credit crunch | Stepping beyond subprime -- Only Panglossians think that the sector is over the worst

THE dawning of a new year is supposed to be about hope, but fear remains the dominant emotion among bankers. This week saw another round of bloodletting as they grappled with the effects of the credit crunch. [...]

One reason for the gloom is that banks' residential-mortgage woes are far from over. Although banks have already written off whopping sums over subprime mortgages, they are vulnerable to yet more hits. Their worldwide remaining exposure to subprime loans (excluding off-balance-sheet vehicles) is put at $380 billion; analysts think they are still only roughly two-thirds of the way through tallying their mortgage losses. When the likes of Citigroup and Merrill Lynch confess their fourth-quarter sins on January 15th and 17th respectively, they are likely to be the most shocking yet: forecasts put the two banks' additional write-downs at $26 billion, on top of the $15 billion they have kissed goodbye so far. Market gossip points even higher.

JPMorgan Chase is expected to get away with a much smaller mortgage-related hit, probably below $2 billion. But it has other worries. It is a big holder of “hung” leveraged loans and bonds, mostly related to buy-outs agreed on in the credit bubble. The $250 billion in unsold debt on banks' books remains a big headache. [...]
The Housing Bubble blog:
Sellers Should Accept The Need For Price Cuts --The Baltimore Sun reports from Maryland. “The local housing market ended its second full year of the downturn in a worsening slump, with year-over-year sales in December falling 30 percent for the fourth month in a row. For local sellers, the problem hasn’t been merely falling demand. Supply rose, too. The average number of unsold homes in any given month last year topped 18,000. That’s by far the largest number on record.”

“Now subprime and other ‘exotic’ loans have all but disappeared because lenders - pummeled by rising foreclosures - pulled back. [...]

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