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The Problem With Suing Bank of America Over Countrywide

For Bank of America  (NYSE: BAC  ) , the acquisition of Countrywide Financial is the gift that just keeps on taking.

In what could be one of the worst corporate acquisitions of all time, Bank of America undoubtedly overpaid in its $4 billion purchase of the troubled home lender -- which was a hallmark of the deals made by former B of A CEO Ken Lewis. It's had to swallow massive losses from soured loans and deal with an extreme business slowdown. And it doesn't seem that there's any end in sight to the lawsuits that B of A is on the hook for thanks to this high-priced tumor known as Countrywide.

But in terms of seeing the U.S. turn the page on the ills of the mortgage bubble, I can't help but wonder how much drubbing B of A with massive lawsuits helps put us in a better place for the future.

Consider this: ProPublica is reporting that former Countrywide executive Rebecca Mairone is now heading up JPMorgan Chase's  (NYSE: JPM  )  Independent Foreclosure Review activities. This is eyebrow-raising -- to say the least -- because Mairone's name pops up in court filings as allegedly being intimately related to the "Hustle," a Countrywide program that currently has B of A in all sorts of hot water. Here's an excerpt from the government's complaint (courtesy of ProPublica):

As explained below, certain individuals within FSL repeatedly warned FSL executives, including ... Chief Operating Officer ("COO"), Rebecca Mairone, that the Hustle would generate excessive quantities of fraudulent or otherwise seriously defective loans that were ineligible for sale to the GSEs. These warnings, however, were ignored... After the roll out began, internal quality control reviews of the Hustle were provided to FSL executives, including ... Mairone. These reviews confirmed that, as predicted, the quality of the loans originated under the Hustle were exceptionally poor. Again, however, FSL executives ignored this information, continued on with the Hustle as planned, and restricted dissemination of the quality reviews.

To be clear, Mairone isn't accused of anything -- the lawsuit is against the company, not individuals. Of course, that's also the point: What does suing Bank of America do to prevent something like this happening again when the people purportedly involved in the program's execution waltz off into new, high-ranking positions? Perhaps Mairone didn't do anything legally wrong, but with banks paying out one massive lawsuit settlement after the next, I think there were obviously some individuals, somewhere doing something wrong.  

Being the dumb corporate parent that buys awful companies seems to be a big no-no (you could also ask JPMorgan, which has its own headaches over Bear Stearns). But running a company into the ground and then selling it to a large corporate rube... well, that doesn't seem to be as much of an issue.

And don't get me wrong -- I don't have a shoulder for Bank of America shareholders to cry on. If they bought B of A prior to the Countrywide acquisition (confession: I did it, too), they knew full well that then-CEO Ken Lewis had a penchant for empire building and overpaying for acquisitions. And if they bought after the Countrywide acquisition, well, it wasn't exactly a secret at that point that it was a deeply troubled company

The optics of Rebecca Mairone's new position at JPMorgan are, at best, sub-optimal. But in the bigger picture, it kind of makes you scratch your head at how so much went wrong, but apparently it was just corporations, never people, that were at fault.

Beyond the lawsuits
Could Bank of America be a buy despite the lawsuits? Or is it time for investors to cut and run? To find out what Fool banking expert Anand Chokkavelu thinks, check out our 
in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.

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10/21/2016 10:59 AM
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