We've been talking to our sources at Bank of America (a rapidly dwindling pool of investment bankers who have begun to carry their resumes with them at all times), trying to figure out what the business rationale for buying Countrywide might be. The best answer we've heard is that the deal reduces Countrywide's cost of funding. As a stand alone entity, Countrywide's borrowing costs had grown so high that it was going to be teetering on the verge of insolvency. But as a part of the ginormous BofA, it will be able to greatly reduce those costs to the extent that its business can be very profitable even in the short term.
Felix Salmon over at Portfolio talks to the sources inside his head and comes to a very different conclusion. Salmon thinks it is about Lewis's plan to concentrate on retail banking and get out of investment banking. "Bank of America has now, overnight, become by far the biggest and strongest and most important operator in the world of US mortgages. Over the long term, that status is going to be hugely valuable for Lewis, even if he has to take some write-downs along the way," he writes. "Finally, the Countrywide acquisition solidifies BofA's status as a consumer bank, and helps Lewis's decision to move slowly out of the investment-banking business look strategic."
Our political friends are already crying bailout. They expect there to be some sort of liability limiting move from Washington, DC as part of this deal. The conspiratorial minded set also believe that this confirms that Countrywide really was as close to bankruptcy as many thought yesterday.
But we first learned of this deal from our commenters, who tend to be our best sources for scoops and analysis. So don't let us tell you what to think on this. Let's do it the other way. Tell us what's going on. Why is BofA so hot to buy Countrywide? And would you buy Countrywide if you were Ken Lewis?
Update:Herb Greenberg says the Fed is engineering this deal and that the government will likely provide Bank of America with guarantees limiting the losses. He also quotes Jon Najarian of Optionsmonster.com, on the very, very suspicious options activity prior to the news of this deal breaking.
To say there was HUGE unusual activity in Countrywide Financial ahead of today’s news that Bank America was close to finalizing a deal to buy the troubled mortgage giant would be as surprising as seeing Dennis Kucinich end his presidential run! We show over 304,000 calls traded against 248,000 puts, but the interesting thing here is that the bulk, some 76 percent of these calls were bought before the announcement! To us this means the likelihood of someone being tipped off was quite high. Like Burj Dubai Tower high!
Why BofA Bought Countrywide [Market Movers]
Posted by arf , Jan 11, 2008 9:47AM
http://blogs.wsj.com/marketbeat/2008/01/11/live-blogging-the-bank-of-americacountrywide-call/
Posted by Yo! , Jan 11, 2008 9:51AM
Would you please stop praising your audience, and by association, yourself? "No, really, you've been a great crowd..." Not taking anything away from that poster - he was paying attention and bringing it to ours - but CFC spiked a few minutes before (2:14pm) the Dealbreaker Comments board "broke" this story (2:18pm).
Posted by Moron , Jan 11, 2008 9:55AM
Yo!
Don't you think it takes some time to TYPE the story in? May be all your thoughts are automatically materializing on TP but we are not that advanced.
Posted by , Jan 11, 2008 9:55AM
how does one buy a company, not knowing if that company will continue paying dividends? how do you arrive at a price?
BOA said to ask CFC if they will pay divs
no wonder BOA is going out of IB business
and:
DJ WSJ: Bank Of Amer In Advanced Talks To Buy Countrywide
(MORE TO FOLLOW) Dow Jones Newswires
01-10-08 1415ET
Copyright (c) 2008 Dow Jones & Company, Inc.- - 02 15 PM EST 01-10-08
Posted by , Jan 11, 2008 9:59AM
Yo!
They broke the story before the major news agencies.
What I meant to say was....shut the f*ck up.
Posted by Yo! , Jan 11, 2008 10:13AM
Hey Anonymous - a poster beating a major news agency on a matter like this isn't exactly a major coup, especially when the stock has already spiked. Unlike posters, major news agencies have editorial encumbrances, like establishing some likelihood of truth, regarding such news.
Hey "Posted by: moron" - Good for you for signing with your real name. Also, "maybe" is one word.
Read my post and it should be clear that I wasn't knocking the guy who posted on BAC/CFC. (If he/she had posted it before the spike, there would have been a serious problem.) I just think JC (who I generally appreciate) has taken one bow too many on this kind-of "scoop."
Posted by well in retrospect , Jan 11, 2008 10:14AM
If you bought CFC based on the little tidbit of news on DB and held it until right now, you'd be a LOSER! 6.70 at 2:18 PM when it was posted here on DB, and currently trading at 6.44
Good daytrade, and that's it!
Posted by , Jan 11, 2008 10:18AM
I didn't say it was a major coup. I simply stated a fact. Maybe you weren't knocking JC, but you somehow felt entitled to make a request. What is making you feel so special this morning? Untangle your ass hairs and get back to work.
Posted by bofa_third yr , Jan 11, 2008 10:30AM
Rumor has it that more layoffs at BofA on Monday. I guess 3k wasn't enough...the fun continues at the so called "Bank of Opportunity". Preparing my MBA applications as we speak. Not getting paid this year either. F*in Ken Lewis and his acquisitions.
Posted by Fake Wall Street Journal Editor , Jan 11, 2008 10:36AM
We missed the scoop because we were trying to figure out a way to get get a clever "dig" in on Hillary in the middle of the TaTa story.
Posted by Inquisitor , Jan 11, 2008 10:43AM
I don't understand it. I have a friend who got into fin services stocks lately saying they were "undervalued" and a good time to buy since they'll rebound eventually.
Maybe they will, but how do you know when we've reached the bottom? I think we have a lot further to go on the way down.
Unless the government bribed me, there's no way I would have done this deal.
Posted by Anonymous , Jan 11, 2008 10:45AM
Carney, Greenberg "says" no such thing, he merely wildly speculates it. The BofA CFO said no when an analyst asked something to this effect during the call.
Posted by , Jan 11, 2008 10:46AM
@10:30...heard the same thing as well around here. This place is a wasteland. Clients calling asking if we're still open for biz, even though our group is decimated. People choosing not to do deals b/c they know the chopping block is coming closer. My lifespan won't be long here either, whether by severance package or choice. Godspeed...
Posted by daveNYC , Jan 11, 2008 10:51AM
This is an ego move. Chuckles is buying CFC because he doesn't want it to look like the $2B investment was a bad idea.
Posted by , Jan 11, 2008 10:57AM
Ron Paul is the only one who can save BofA now.
Posted by , Jan 11, 2008 11:00AM
I think that the idea that someone may have acted on inside information is utterly false. Financial types, especially American financial types, would never cheat to make a buck.
Posted by , Jan 11, 2008 11:09AM
Isn't boa running up against the cap and since ibanking didn't work for them they've got to figure out some other area to expand into? Either that or they're chasing bad money with good.
Posted by , Jan 11, 2008 11:11AM
Maybe some of the smoke from J Cayne's office wafted over.
Posted by s75 , Jan 11, 2008 11:12AM
if i am BAC, yes i do buy countrywide for a variety of reasons, only one of which is it benefits the franchise long term. thinking about 2012 bofa not 2009 bofa, ask anyone (who is honest) that currently works there in mortgage and you will know what i'm talking about. landsafe and the growing insurance business are good to have. i wonder what becomes of CSC though? anyway, given what BAC already has to deal with there is a lot of work to be done near term but view this is a somewhat risky deal the positives clearly outweigh the potential negatives
Posted by , Jan 11, 2008 11:16AM
you know it takes like 5 minutes for any comments to post on DB
Posted by jag , Jan 11, 2008 11:19AM
11:09 AM: The WSJ article this morning explains the loophole that lets BoA effectively evade the cap -
http://online.wsj.com/article/SB120005404048583617.html?mod=hps_us_whats_news
Posted by Sleight of Hand , Jan 11, 2008 11:35AM
http://seattletimes.nwsource.com/html/businesstechnology/2004112967_bizbriefs08.html?syndication=rss
Check out the Golden parachute that was deployed earlier this week. One could have made a quick 30% on this news.
Posted by Anonymous , Jan 11, 2008 11:35AM
Just look at banks-implode.com
BofA still needs to cough up 3-4 Billion to join the FHLB of Atlanta
Posted by viscous cycle , Jan 11, 2008 11:40AM
I generally think BAC is incompetent, evidence abounds.
But I think CFC acquisition will be a homerun.
Remember 1991 when Citicorp was going to go bankrupt because of third world writeoffs? It fell about 50% in 6 mos, then proceeded to go up about 2000% over the next 8 years. Very different but similar.
Posted by , Jan 11, 2008 11:40AM
@ 10:57 - Agreed. We need Ron Paul in the White House Now!
Posted by , Jan 11, 2008 11:42AM
the rumor that BofA was buying CFC was all over the market on tues/wednesday
Posted by , Jan 11, 2008 11:49AM
Could be possible that Helicopter Bernanke was behind this.
Posted by 5H3K1 , Jan 11, 2008 1:03PM
@11:09
good call...B of A found a way to expand with the 10% deposits CAP. CFC assets governd under thrift rules
Posted by , Jan 11, 2008 1:44PM
@1:03 that has been known basically since they hit 10% the first time
note to one-dimensional thinkers out there: so cfc stock rallied, you could still sell cds at above 1000 for the next 20 minutes and buy bonds around 70 and sell cds at 600 for the next hour
Posted by giant godlike penis , Jan 12, 2008 2:18AM
jon najarian is the same turd who claimed that the buy of puts in the airline stocks b4 9-11 was a terrorist trade.
it was a pretty open secret who bought the puts.
turdboy needs to shut up. he is a dinosaur never was never will be