Weird acquisition of Countrywide by BAC
Posted by Frugal on May 6th, 2008
Bank of America (BAC) is saying the most unthinkable: it may not guarantee Countrywide’s debts after acquisitions.
I have never heard such things. Buying a company without owning its debts?? What kind of deal is that? Well, since this deal was a downer for BAC in the very beginning, I would think that it would have made more sense for BAC to walk away. BAC have certainly done a disservice to their shareholders by buying up a piece of toxic junk that is worth probably a negative value. Countrywide would certainly have gone bankrupt or close to bankrupt, like many of its peers. And the prime season for resetting on negative amortization mortgages which Countrywide owns a lot is NOT here yet.
If this deal goes thru without the debts, this will be the total opposite of the Bear Stearns deal where debt holders were saved, but shareholders were destroyed.
In any case, I think stock markets are passing through brief sunny time (that could last up to 1 year) before a bigger storm hits on neg. ARMs. Enjoy it my friends.
More related posts:
Digg it Del.icio.us Reddit Furl BlinkList Newsvine Yahoo MyWeb
May 6th, 2008 at 8:12 am
What will happen to people with Countrywide mortgages?
May 6th, 2008 at 11:17 pm
Yeah, aren’t there legal restrictions that say they have to assume the debts?
I’m not an expert on securities law, but this seems too out of the ordinary to be true.
May 7th, 2008 at 4:20 pm
My guess is this is just bad reporting. Companies buy parts of each other all the time. It could be that BOA is pushing to have countrywide spin off its mortgage acquisition and retail banking businesses from the mortgage securitization and investment portions. The debt would stay on the investment part of the business. The people, retail offices, marketing, and backend systems could be sold at a high price to BOA, while the debt and consequences for stupidity stay with the countrywide equity holders.
The shareholders really can’t complain. Countrywide is bankrupt…there is no value in the company apart from selling off the pieces. With no sources of capital they can not hope that a restructuring would make them profitable, since you can not lend with out some capital. They have to sell something, and it looks to me like BOA is making an offer.
May 7th, 2008 at 4:47 pm
Will Countrywide pass their FDIC deposits to BAC?
May 7th, 2008 at 4:47 pm
Will Countrywide pass their FDIC deposits to BAC?