Back in 2008, Bank of America Corp (NYSE:BAC) made the heroic move of buying the crippled mortgage lender Countrywide Financial Corp. The rescue was made with high hopes, as expressed in the optimistic views given by CEO Kevin Lewis in his statement , “We view this as a one-time opportunity to acquire the best mortgage platform in the business at a time when the value is very attractive,” this uplifting comment was made as the deal was being announced.
This acquisition has haunted BofA since the day it was made and has struck deep wounds in the corporation’s profile. Bank of America is currently trading at $8 a share which is downright cringeworthy when compared to an approximate $40 a share price seen in January 2008, around this time the BofA signed this ill-fated deal.
The BofA bought Countrywide at $2.5 billion, while admitting the risks that came with the agreement, Kevin Lewis said, “We are not paying $22 billion either”. As bad luck goes, the CEO was not making idle remarks, in reality they ended up paying much more than just $22 billion. The losses that Bank of America has suffered so far have already exceeded $40 billion, the revenues have drowned in settlements with government agencies and paying off investors.
It won’t be an exaggeration if this deal is referred to as the worst deal in the history of American banking but at the same time it has helped in resolving the mortgage loan fiasco that has been ailing the US economy for so long now. While all the sins of Countrywide are not absolved yet, BofA has paid a huge price and made a significant contribution.
* Updated figure in title