I was sitting at this very keyboard slightly more than four years ago when word came across our newswires that Bank of America was riding to the rescue of beleaguered home lender Countrywide Financial Corp., investing $2 billion in what was the first step toward a takeover.
The date was Aug. 22, 2007. Conventional wisdom at the time was that very shortly, both Calabasas-based Countrywide and the nation’s faltering housing market would quickly find their footing. And that, for a bargain-basement price of $4.1 billion, Bank of America’s then-CEO Ken Lewis would become the dominant player in the mortgage business.
Wrong, wrong, wrong. Like millions of suffering homeowners who bought at the top, Bank of America now is suffering the extended consequences of the real estate bust. Lewis is gone in disgrace, BofA stock is getting pummeled and the bank’s Countrywide problems extend far out into the future.
Some pundits — you can add me to the growing list — are wondering if an acquisition in the back yard of our region will actually go down as the worst deal in the long and sordid history of mergers. When it comes to naming the worst of the worst, there is one big caveat. As the Wall Street Journal pointed out in a late June online item on the Countrywide-Bank of America fiasco, the AOL-Time Warner merger was far bigger in dollar terms and came to symbolize the excesses of the dot-com era.
But the costs of this merger are nothing short of staggering. Cleaning up Countrywide’s books and lending excesses, plus settling a massive amount of litigation, are expected to cost Bank of America well in excess of $30 billion.
Some $20.6 billion in charges to earnings were booked at the end of the second quarter alone. BofA’s top brass says it now regrets the merger and CEO Brian Monyhan has talked about gaining a “peace dividend” from putting a halt to the acquisition activity that has gotten BofA into so much trouble.
Separate reports from Bloomberg News and the New York Times hint strongly that BofA could place the remnants of Countrywide into bankruptcy protection. Warren Buffet recently bolstered BofA’s balance sheet with $5 billion in fresh cash, but the Omaha billionaire cleverly used preferred stock, putting him a step ahead of common shareholders in claiming assets.
For the Tri-Counties, the merger has created its own aftershocks.
After riding the job-growth engine created by Countrywide co-founder Angelo Mozilo, the region held its breath in the summer of 2007. When a final agreement was struck early in 2008, the BofA-Countrywide deal was hailed as potentially saving many, if not all of the more than 5,000 mortgage-related jobs in the region, including several large processing and servicing operations in Ventura County. But BofA has restructured its real estate holdings along the Highway 101 corridor and now is beginning to shed chunks of its former Countrywide operations. Some 750 jobs in its correspondent lending unit in Westlake Village and Thousand Oaks are now in jeopardy with more to come as the bank prepares to shed 30,000 positions companywide.
It is anyone’s guess as to what set the Countrywide-BofA deal in motion. Was it hubris on the part of Lewis? Canny negotiating by Mozilo? Pressure from banking regulators who engineered a shotgun wedding to prevent a Countrywide collapse?
BofA’s last round of deals, including ditching a nascent merger with Lehman Brothers in order to buy a nearly bankrupt Merrill Lynch, have cast a cloud over the Hail Mary play as an appropriate tactic for banking mergers.
In the brave new world of banking, where too-big-to-fail is more than just a theory, capital is just to precious to be bet on ambition — and a hunch.