Why Can't MBIA Understand That BofA Was Only Buying The Good Parts of Countrywide?

Was the "worst merger in Wall Street history" a merger at all?
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Was the "worst merger in Wall Street history" a merger at all?

A judge's answer to that question will go a long way towards determining if the more than $40 billion (and counting) that Brian Moynihan & Co. have already paid in penance (and write-downs and legal fees, etc.) for the albatross that was and is the "world-class" company known as Countrywide is enough, or if MBIA is entitled to some billions of its own.

In a two-day hearing Wednesday and Thursday, BofA argued it structured its 2008 deal with Countrywide in a way that allowed it to avoid liability for certain Countrywide assets, branded "too toxic" in one internal bank email….

During the proceeding, Bank of America has maintained that the Countrywide deal was structured as a purchase of assets rather than a merger, and that it paid a fair value of more than $45 billion for the assets it acquired, leaving plenty of cash and viable assets in what remained of Countrywide to satisfy creditors' claims.

"Bank of America was not liable for Countrywide's debts when it bought Countrywide's assets," Walter Dellinger, a partner at O'Melveny & Myers in Washington, D.C., who is representing the bank, said in court. As to whether BofA intentionally designed the deal that way to avoid liability, Mr. Dellinger said: "Of course it did."

Too bad Brian, his predecessor, the immortal Ken Lewis, and other BofA execs. couldn't keep their mouths shut.

MBIA said the deal was in fact a merger in which BofA absorbed 19,000 Countrywide employees, technology and operations to enhance its mortgage capabilities. The insurer introduced videotaped deposition testimony from executives including former Chief Executive Ken Lewis and current CEO Brian Moynihan to bolster its case.

"The objective was to present a common set of products and a common brand to our combined set of customers," Mr. Lewis said in an April 2012 deposition aired in New York state Supreme Court in lower Manhattan Wednesday.

"We combined operations," Mr. Moynihan said in his own May 2012 deposition played in court. "I don't know what [Countrywide] businesses are in what legal entities."

This most recent round of the mudslinging contest that is MBIA v. BofA comes just days after BofA ponied up $11.6 billion to make nice with Fannie Mae. But, according to BofA, Fannie was willing to play ball; if MBIA would stop throwing its temper-tantrum, it's sure a deal is there to be had.

"We have established a pattern of settling legacy matters with reasonable parties, including other insurers, when it is in the best interest of our shareholders," said Lawrence Grayson, a spokesman for Bank of America. "That remains our approach."

In Court, Bank of America Seeks to Avoid 'Toxic' Countrywide Liabilities [Dow Jones via Fox Biz]

Related

Bank Of America Briefly Considered Unburdening Itself Of The Drunken Mistake That Was Countrywide

And then decided that sticking with the "worst deal in the history of American finance," which has cost it $40 billion in cleanup so far, made them at least look like responsible adults, facing the consequences of their actions, rather than deadbeats trying to take the easy way out. Long before Sanford Weill suggested last week that big banks should split up, Bank of America executives and directors considered the idea and then decided against it, said people close to the nation's second-biggest bank by assets...Chief Executive Brian Moynihan and his team looked at a possible bankruptcy of Countrywide Financial Corp., the troubled mortgage operation it purchased in 2008. Management also studied whether it made sense to break off Merrill Lynch, the securities firm it purchased in 2009. Mr. Moynihan ultimately recommended to his board that neither action made sense. The company decided Merrill had become too big of a profit center and splitting it off could expose the brokerage firm to the sort of funding problems that killed off other Wall Street firms in 2008. Meanwhile, it felt bankruptcy of Countrywide might invite more legal and reputational troubles for Bank of America while exposing other subsidiaries to problems. Bank Breakups, Not So Fast [WSJ]

Angelo Mozilo: Countrywide Was The Cadillac Of Mortgage Lenders

In June 2008, Countrywide founder and CEO Angelo Mozilo stood before a group of CFC shareholders and, through salty tears, told them that Bank of America would "reap the benefits of what we have sowed." He wasn't kidding, and in the 4+ years since Ken Lewis paid $4 billion for the place, BofA has had the pleasure of ponying up an additional $40 billion (and counting) in write-downs and legal fees associated with cleaning up Countrywide's messes, while CEO Brian Moynihan has publicly described the acquisition as an albatross around his neck. Additionally, Ang Moz forked over $67.5 million in 2010 to "resolve SEC claims that he misled investors," and separately, there has been talk by some that Countrywide contributed in no small way to the worst financial crisis since the Great Depression. In light of all that, does Ang Moz, have any regrets about the way his company was run? Not a fucking one and if he had to do it all over? He wouldn't change a thing.