Countrywide stock surged more than 50% on rumors Bank of America may be acquiring the lender. We’ve heard this before, but right now there’s talk that the two companies are “in advanced talks”, although there’s still some possibility that the deal will fall through. Neither company has officially commented on the rumors.
Back in August, Bank of America bought $2 billion’ worth of Countrywide shares, an investment which has by now lost a significant part of its value. Before the stock rally, Countrywide was valued below $3 billion, which makes it an attractive target for BofA. By buying Countrywide, the leading U.S. lender, BofA can expand its client base. The bank currently holds 9.88% of the country’s deposits, just below the 10% federal limit. However, this limit does not apply to federally chartered thrifts, and Countrywide happens to be one, which means that Bank of America could use the loophole and circumvent the growth limitation. Countrywide’s loan portfolio could pose a problem, however, because it contains a lot of “toxic” mortgages which are fast losing value. There is a lot of speculation surrounding the deal. Some say it was encouraged by Washington, the primary reason being that Countrywide, contrary to its own allegations, is indeed close to bankruptcy. It is believed that authorities wouldn’t let Countrywide fail, because, due to its sheer volume, the lender could put the economy at risk.
No comments:
Post a Comment