Will Countrywide Be Bank Of America’s Golden West?

Wachovia [[wb]] effectively threw in the towel today with respect to making a return on their purchase of Golden West when they decided to stop offering option-ARMs. When you consider the fact that Countrywide [[cfc]] has even larger numbers of exotic mortgages on its balance sheet not to mention being a major subprime player, you have to wonder if Countrywide will become Bank of America’s [[bac]] Golden West.

Don’t get me wrong I understand the value in acquiring a mortgage lending network as large as Countrywide’s, and Bank of America did need to act in order to protect its investment in the company. BUT as CFC’s loan portfolio continues to sour one has to wonder if the cost of buying the company will turn out to be higher than the cost of eating their investment and buying up the pieces at bankruptcy, and/or building up their own lending network to fill the void left by Countrywide.

Better yet if Bank of America hadn’t already invested two billion dollars into CFC back in August, would they have even tried to buy the company, would anyone?

Only time will tell but if I were an investor in BAC I would be slightly nervous right now. Between the lawsuits and the balance sheet issues BAC is going to be cleaning up the mess left behind by Mozilo and company well into the next decade.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article.

Posted in Categories: Contributor, External Research, Stocks.

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