A Good Deal That Went Bad
Back in January 2008, it seemed like a good deal for Bank of America. They were getting the largest mortgage lender in the U.S. for around $2.5 billion. The Countrywide Financial acquisition that seemed like such a good deal then has ended up being Bank of America’s worst nightmare, as reported by Reuters and others. To put it bluntly, the acquisition of Countrywide has been a financial disaster for Bank of America because of the onslaught of legal claims arising from the multitudes of toxic subprime loans underwritten by Countrywide leading up to and causing the financial meltdown of 2008. The Countrywide CEO Angelo Mozilo settled with the U.S. Securities and Exchange Commission (SEC) on a series of fraud charges related to the firm’s activity and the securitized subprime mortgage backed securities (MBS).
Bank of America has been receiving a new lawsuit virtually every week that involves the Countrywide Financial problems. The firm thought that it had reached an agreement to get rid of the Countrywide issues for $8.5 billion but there have been many objections to the settlement filed putting it in jeopardy. As Brian Moynihan, President and CEO of Bank of America, very succinctly put it, “obviously there aren’t many days when I get up and think positively about the Countrywide transaction in 2008.”
Now, with all of the legal claims and the litigation costs stemming from the deal, Countrywide is projected to end up costing Bank of America $30 billion, its worst nightmare.