What's it going to take to save Countrywide Financial? At least $4 billion, which is what Bank of America said it would be willing to pay for the troubled mortgage lender. In the long run, a union between the country's largest mortgage service provider and the nation's largest bank by market value may prove formidable. But in the short term, the joining of the two companies looks awkward at best. Bank of America is buying into a company that has been a symbol for the mortgage crisis, not to mention Countryside's delinquent loans and legal liabilities. And what about Countrywide's loquacious, well-compensated and high-profile chief executive Angelo R. Mozilo? Will he have a role in the new integrated company or will he take his millions of dollars in stock options and work on his tan in retirement?
NEWSWEEK's David Koeppel spoke with Eric Hovde, CEO of Hovde Capital Advisors, about which company is most likely to benefit from the acquisition, if the deal will close and what the merger might mean for anyone already suing Countrywide. Excerpts:
NEWSWEEK: What's Bank of America got to gain by acquiring Countrywide?
Eric Hovde: I don't know if they'll see the benefits for three to four years. The housing market won't go back to its 2003 to early 2006 levels in our lifetime. But if it stabilizes they will be in a prime position having assembled [the country's largest mortgage servicing portfolio]. But there are many variables, like how much farther the housing market will fall… and we don't know how bad Countrywide's loans truly are. We'll know if it will be a disaster within the next 18 months.
The downside for Bank of America?
The downside can be tremendous. They're absorbing roughly $100 billion in mortgage-related securities and a lot of assets of the most toxic nature. There's high risk embedded in the deal.
What will likely happen to Countrywide's CEO, Angelo Mozilo?
I find it highly unlikely that Mozilo will be part of the combined entity 12 months after the acquisition. He's long been the number-one at Countrywide and he's got a strong ego; I don't see him operating in that corporate world. And I don't understand why Bank of America would want Mozilo in a continuing role, given that he is one of the poster children that helped foster the mortgage mess and housing bubble. He's sold enough stock when Countrywide was selling in the $30's, $40's and $50's that he could have retired many years ago.
Why has Countrywide become almost synonymous with the housing bubble? Exactly what was Countrywide's role?
All the mortgage companies engaged in over-hyping and were involved with toxic mortgage products. [But] they were one of the worst. Countrywide was an industry leader that other companies looked up to and Mozilo had the loudest voice in the industry. He could have provided guidance to prevent this mess from occurring.
What about all the lawsuits that Countrywide was fending off? Does Bank of America inherit those as well?
The lawsuits are another of the major risks of this deal. They're entering into a company with so many predatory lending lawsuits against them and Bank of America is stepping into the liability chain. Defending those lawsuits or potential lawsuits, they'll have to absorb that cost. It's not like people will stop suing if Countrywide is acquired by Bank of America. Some [of those who planned to sue Countrywide] may well view it as a benefit: if Countrywide had failed and declared bankruptcy, those claims would be secondary. Now they can have litigation against a party that can make those payments.
What is the likelihood that this deal will close?
I think there's a fair amount of risk to whether it will close or not. Regulators still have time to opine and the deal is not scheduled to close until the third quarter. Many of these sales are never completed because a troubled company can deteriorate significantly [between the time a deal is announced and completed.] I'm sure Bank of America wrote a material adverse change clause which enables it to walk away from the deal if the financial condition of Countrywide deteriorates.