The struggle between Bank of America
And what a struggle it has been. Since day one of last summer's initial $2 billion lifeline, it has been a non-stop game of tug-o-war between Countrywide and the stalled credit market. There were the losses, the writedowns, the questionable pay packages, and, of course, a never-ending parade of antics by its Hawaiian Tropics model CEO Angelo Mozilo.
What's done is done. While Bank of America has been chipper about the acquisition all along, the amount of turbulence about the deal is enough to make a fighter pilot queasy. Bank of America has its own mess to sort through aside from Countrywide, making anything that can be considered bargain hunting seem a bit ill-timed. Let's go out on a limb and piece together why Bank of America may have been inclined to scoop up Countrywide earlier this year:
- It had invested $2 billion in Countrywide last summer when the mortgage market was barely singed, compared with today.
- Its timing on that investment was downright lousy.
- Countrywide faced bankruptcy rumors in January.
- To risk losing its entire stake, Bank of America double-downed and gobbled up the entire company.
The flip side of this would be that Bank of America thought Countrywide was cheap last summer and a steal-of-a-deal to buy at a fraction of that price. In either case, there're two solid lessons you can take away from the deal:
You'll never time the bottom perfectly
Countrywide had already eaten a mouthful of dirt when Bank of America came rushing in to help last summer. Shares had fallen from the $40s to the mid-$20s in the previous six months. Was the company cheaper than before? Yes. But was it cheap? In hindsight, obviously not. With a housing bottom still a distant thought and the secondary mortgage market still in panic mode, Bank of America will need to become a Zen master of patience if it ever intends to capitalize on Countrywide's assets.
Management's credibility can never be overlooked
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.
Regardless of how dire Countrywide's situation is, Bank of America will now become the nation's largest home lender. That'll give it a nice niche over competitors like Wells Fargo
At last, we can finally say it. R.I.P., Countrywide.
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