Bank of America's Countrywide Investment

It's no secret.  Most people already knew that Bank of America invested $2 billion in Countrywide Financial Corp in order to be able to buy Countrywide's assets at a distressed price.

If Countrywide were put up for sale, BoA would be given the first right of refusal.  According to article, Ken Lewis invested the money in order to get a better deal on Countrywide's product suite and loan-processing technology and also to keep competitors away from buying Countrywide.

Both companies also declined to comment on whether Countrywide paid the first quarterly payment that was due earlier this month.  That seems to me like a strong signal that Countrywide is insolvent. 

Of course, no need to worry.  The fed is there to loan Countrywide unlimited amounts to ensure it will not go into bankruptcy.  This is not me just me saying it, this is in the article!

 

It's unclear how serious Countrywide's problems really are. CEO Angelo Mozilo is adamant that Countrywide has ample cash and borrowing capacity to meet obligations and has predicted a quick return to profitability. Just last week, Countrywide was rocked by mortgage-related jitters, prompting it to take the unusual step of issuing a statement denying rumors that it was near bankruptcy.

Countrywide declined to comment for this article.

Even if Countrywide were to fail, Bank of America's stake still could have important value for the firm. One significant factor: In return for its $2 billion investment, Bank of America was given first right of refusal to buy Countrywide if it were put up for sale.

 

The first quarterly payment was due earlier this month. Bank of America and Countrywide declined to comment on whether it was paid.

 

The chances that Countrywide could have to seek court protection in the traditional sense seem remote to some bank analysts, in part because of the company's deep relationship with the federal government. The deposits in its banking arm are federally insured and it has borrowed heavily from the quasigovernmental Federal Home Loan Bank in Atlanta.

Regarding Countrywide, analyst Richard X. Bove of Punk Ziegel & Co. argues that if it were indeed to fail, the federal government would facilitate a sale to Bank of America, much as many believe that regulators encouraged Bank of America to take the stake in the first place.