Bank of America - The Contrarian
January 12th, 2008
I welcome the Bank of America (BAC) acquisition of Countrywide (CFC), as for the first time as I can remember BAC acts as a contrarian investor. I really don’t know what CFC is worth but I know it is worth more in BAC’s hands than as a stand alone company. BAC will be able to provide CFC with liquidity and staying power to survive through the current crisis. In other words it brings continuity to the table (customers and partners that were having second thoughts about dealing with CFC are likely to stick around now).
I am applauding this deal because typically these are done at the top of the market, but BAC found a restraint to wait till things went to hell. Yes, it was early with its first purchase, but picking bottoms is not easy, even for almighty BAC.
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2 Comments Add your own
1. Jason G. | January 12th, 2008 at 6:03 pm
Even if BAC loses money on the deal, it’s a strategic move. While us traders think about picking tops and bottoms, Ken Lewis runs a business, and is always trying to figure out how he can expand his empire… er… bank. He’s done big deals while things were booming, and he’ll continue to do big deals while things are going to hell in a handbasket. Most importantly, he will face no real regulatory concern about bailing out CFC (the same could not be said during boom times).
2. Lester Golden | June 1st, 2008 at 5:01 pm
Regrettably, I own BAC at an avg of 46. CFC deal carries enormous potential legal liabilities–a potential politico-legal vendetta against the mortgage industry. Potential strategic reward is of the “last man left standing” makes a bundle long term, after running a potential legal-regulatory gauntlet. Ken Lewis can’t possibly foresee how much risk he’s running as the housing bust metastasizes and gets politicized. BAC buying CFC is like Rome conquering Palestine–be careful of what you wish for….
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