Countrywide deal defended
Bank of America Corp. Chief Executive Officer Kenneth Lewis said his planned purchase of Countrywide Financial Corp. – Ventura County’s second-largest employer – is “compelling” because it will provide gains even if U.S. home prices drop by 25 percent in the next two years, as the bank expects.
Taking over Countrywide, the home-lender that all but collapsed under the subprime crisis, will give Bank of America about a quarter of the mortgage market in the world’s biggest economy, Lewis said June 2 on a call with investors. It will profit from fees tied to Countrywide’s $1.5 trillion business handling mortgage billing and collections, he said.
“We don’t have our heads in the sand” regarding the housing market, Lewis said. Bank of America, the second-largest U.S. bank, is “a bet on the U.S.” because it doesn’t intend to buy a retail or investment bank overseas, he said.
Some analysts are skeptical about the purchase, saying North Carolina-based Bank of America may have to write down Countrywide’s loans because of sliding home prices. Such write downs could total $30 billion, analyst Paul Miller of Friedman, Billings, Ramsey & Co. said last month.
Lewis defended the decision. Even if home prices drop by 15 percent this year and 10 percent in 2009, as the bank has estimated, “We’re OK,” Lewis said. “We think the upside is pretty nice.”