Explaining Southern California's economy

Is Bank of America about to put Countrywide into bankruptcy?

Bank of America's stock price is drifiting down again today, edging precariously close to $7. There's really no convenient way to phrase it: the bank continues to suffer a hangover from its pre-financial crisis acqusition of Countrywide. So how do you solve a problem from Mozilo? Possibly...bankruptcy? This is from Bloomberg:

The option of seeking court protection exists because the Charlotte, North Carolina-based bank maintained a separate legal identity for the subprime lender after the 2008 acquisition, said the people, who declined to be identified because the plans are private. A filing isn’t imminent and executives recognize the danger that it could backfire by casting doubt on the financial strength of the largest U.S. bank, the people said.

The threat of a Countrywide bankruptcy is a “nuclear” option that Chief Executive Officer Brian T. Moynihan could use as leverage against plaintiffs seeking refunds on bad mortgages, said analyst Mike Mayo of Credit Agricole Securities USA. Moynihan has booked at least $30 billion of costs for faulty home loans, most sold by Countrywide during the housing boom, and analysts estimate the total could double in coming years.

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Our little corner of the Bank of America sell-off

Bank of America, the country's second-largest bank (or first, depending on if you go by assets rather than market cap), is in a heap of trouble. Its CEO, Brian Moynihan, is presiding over a restructuring that's supposed to refocus the mega-bank on its core consumer business. This means massive layoffs — 30,000, according to various published reports. There's also been speculation that BofA will try to sell Merrill Lynch, the investment back it acquired after the financial crisis. But there's also speculation that Merrill would be absorbed into BofA and become something far less than the top-level i-bank it was back in the day. That's speculation for you! Heads one day, tails the next!

Countrywide is also a major factor. The subprime mortgage lender was picked up by BofA just before the financial crisis and its portfolio of bad loans is often pointed to as the biggest drag on BofA's performance. There's a nightmare scenario in which BofA puts Countrywide into bankruptcy and then witnesses federal regulators take control of the bankruptcy proceeding — and BofA. 

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