I wrote earlier this week about the market’s reaction to the rumors that Countrywide Financial, one of the country’s largest home-mortgage lenders, would file bankruptcy soon. I mentioned that although the rumors may have been nothing more than a scare tactic, there was probably some truth in the fact that Countrywide was struggling to the point that bankruptcy was possible.
So what happens when a company is doing so bad that the market begins believing it might have to file bankruptcy? They get acquired of course! Bank of America announced today that it would but Countrywide Financial for $4 billion (with a ‘b’). But the fact that Countrywide was willing to take a deal that valued it shares 8.3% below trading levels reveals just how desperate the firm was.
Can you tell when the announcement was made?
Of the deal, Stifel Nicolaus analyst Christopher Brendler said:
“This deal comes together because no one wanted to see Countrywide fail; it is a win-win for everyone involved, but doesn’t indicate that the mortgage problems are behind us.”
But it does mean that BofA will likely become the nation’s largest mortgage lender. Brendler also said Countrywide is no sure bet for BofA. The company still has a dicey portfolio, with $80 billion in high-risk mortgage loans. Several months ago, many of these loans were not considered high risk, but the deterioration of the markets now makes them so
So let’s all give BofA a round of applause for helping to stabilize the lending market (and pick up a a major lending company at WalMart prices) and wish them luck with their new prize!