thedreamer
Forumer storico
By Matt Phillips
AFP/GettyClosely followed financial stock analysts Mike Mayo of CLSA is out with a note this morning suggesting that BofA might be able to declare bankruptcy for its Countrywide unit, where most of the mortgage putback losses would be likely to emanate from.
Mayo admits this is a longshot outcome. But suggests that a Countrywide bankruptcy is possible because it “remains a separate legal entity” and the specter of bankruptcy could be an “ace card” as part of negotiations at some point:
More than 85% of the bank’s 1.3 million mortgage customers now at least 60 days behind on their payments got their loans through Countrywide. The $4 billion deal also saddled Bank of America with technology problems, paperwork glitches and cultural tension.
Investors such as the Federal Reserve Bank of New York, Neuberger Berman Group LLC, BlackRock Inc., Western Asset Management Co. and Allianz SE’s Pacific Investment Management Co., or Pimco, have been making noises that they want to force Bank of America to buy back some batches of bad mortgages they bought from BofA.
And Mayo argues that BofA could use the potential bankruptcy option for Countrywide as a cudgel in negotiations. He writes:
Mayo admits this is a longshot outcome. But suggests that a Countrywide bankruptcy is possible because it “remains a separate legal entity” and the specter of bankruptcy could be an “ace card” as part of negotiations at some point:
While having a strong disincentive to pursue a bankruptcy of Countrywide because of politics, reputation, and other factors, there could be an economic incentive for doing so given that: a) most mortgage problems stem back to Bank of America’s acquisition of Countrywide, which originated 86% of BAC’s mortgage loans that are 60+ days behind on payments; and b) Bank of America’s market cap decline of $20bn seems in excess of its investment in Countrywide, for which it paid $4bn (with an unclear amount of existing loan guarantees).
As The Journal’s Ruth Simon and Dan Fitzpatrick reminded us in their piece on published Monday, Bank of America was a modest player in the mortgage-servicing industry before the 2008 acquisition of Countrywide Financial Corp. The takeover, encouraged by the Treasury Department, ballooned the size of the combined company’s servicing unit to 14 million loans from four million.
More than 85% of the bank’s 1.3 million mortgage customers now at least 60 days behind on their payments got their loans through Countrywide. The $4 billion deal also saddled Bank of America with technology problems, paperwork glitches and cultural tension.
Investors such as the Federal Reserve Bank of New York, Neuberger Berman Group LLC, BlackRock Inc., Western Asset Management Co. and Allianz SE’s Pacific Investment Management Co., or Pimco, have been making noises that they want to force Bank of America to buy back some batches of bad mortgages they bought from BofA.
And Mayo argues that BofA could use the potential bankruptcy option for Countrywide as a cudgel in negotiations. He writes:
The 18 October 2010 letter of notification by Pimco/BlackRock/Freddie/NY Fed/others to Bank of America and others indicated that there are breaches in reps and warranties in RMBS that need to be resolved. Yet, these same parties, if they push too hard, would get hurt by a bankruptcy of Countrywide. Thus, we believe these players could likely push hard enough to get fair damages, but not so hard as to give BAC any incentive to pursue the “nuclear bomb” threat of even considering the idea that Countrywide could go bankrupt.
