Bank Of America Should Walk from Countrywide Deal!
Saturday, May 10, 2008
Predicting that Countrywide Financial Corp.'s loan portfolio will be a potential drag on the bottom line for scheduled purchaser Bank of America (BofA or NYSE: BAC), financial analyst Paul Miller, Jr., with Friedman, Billings, Ramsey & Co., Inc., said Monday that his group is lowering its price target for Countrywide to $2 from $7 and downgrading the subprime lending platform to “underperform” from “Market Perform.”
Miller, in his analysis, predicts that BofA could face $20 to $30 billion in loan write-downs after acquiring Countrywide—a situation that he believes could cause Bank of America to change the terms of its negotiations, pushing the deal potentially down to the $0 to $2 level.
Miller went a step further saying, “BAC should completely walk away from the CFC deal, as CFC's loan portfolio will prove a drag on earnings and could force BAC to raise additional capital.”
Miller added, “Many investors believe that BAC does not want the negative publicity from renegotiation to ruin a solid reputation. But on May 1, BAC announced that it might not guarantee CFC's debt, which is most likely the first step in renegotiating the entire deal.”
Miller, in his analysis, predicts that BofA could face $20 to $30 billion in loan write-downs after acquiring Countrywide—a situation that he believes could cause Bank of America to change the terms of its negotiations, pushing the deal potentially down to the $0 to $2 level.
Miller went a step further saying, “BAC should completely walk away from the CFC deal, as CFC's loan portfolio will prove a drag on earnings and could force BAC to raise additional capital.”
Miller added, “Many investors believe that BAC does not want the negative publicity from renegotiation to ruin a solid reputation. But on May 1, BAC announced that it might not guarantee CFC's debt, which is most likely the first step in renegotiating the entire deal.”
