Bank of America's purchase of Countrywide last week is monumental. Humans like to write off people or things when they are down. From Bank of America's standpoint, 4.1 billion dollars is small change. They are the number 1 Bank in our country and just purchased 7 million new customers. The merger of consumer banking and mortgages will now begin to merge. All of the investment banks turned consumer banks like JP Morgan and Citi will need a mortgage group because now B of A got the Randy Moss of their industry. I think the SEC would block this if Countrywide was not on the verge of collapse. Once Bank of America gets a personal insurance companyy they will own us. There are great risks and rewards to this situation in the short term, but the long term view will be profoundly great for them.
The risks are pending lawsuits against Countrywide and the potentially high number of loan defaults. Bank of America most likely safeguarded themselves against these two calamities, but they can still be damaging in some uncovered angle. They don't need to make a profit on these loans, just the lowest cost resolution. Any profit would be an added bonus.
There are many positive aspects. It all depends on their highest margin business. This acquisition gives them a new way to feature and display their bread winner. The key here is that B of A doesn't have to make any profit on the mortgages they acquired. It's actually more important for them to minimize loss. As a result they can find a solution that works for them that wouldn't have worked for stand-alone Countrywide. They got a stellar business process for cheap. This is a Cashflow Quadrant concept. Bank of America bought their processes and customers for dirt cheap.
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