Thursday, June 26, 2008

Taxpayers Fund Bank of America's Countrywide Takeover

According to
Bank of America Corp.'s $3 billion takeover of Countrywide Financial Corp. will be financed by 138 million tax-paying Americans.

Bank of America, led by Chief Executive Officer Kenneth Lewis, can use tax write-offs to pay for Countrywide, the country's biggest mortgage lender, said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who now runs his own accounting firm. Taxpayers may pick up about $5 billion of Countrywide's losses over 20 years, he said. Countrywide shareholders approved the sale today.

``Ken Lewis got a break,'' Willens said. ``What these losses do is reduce the effective cost of the deal so the headline price isn't really what they're paying. It's entirely possible that the entire equity purchase price could be financed by tax savings.''

The tax benefit may explain why Lewis continues to back the purchase even as analyst Paul Miller of Friedman, Billings, Ramsey Group Inc. said he should ``walk away.'' Miller, the top-ranked analyst in Bloomberg's latest survey of stock-pickers, estimates Countrywide will lose as much as $33 billion on bad home loans. Lewis said this month Bank of America, the biggest U.S. consumer bank, will come out ahead even if home prices drop by more than 25 percent in the next two years.
Countrywide and its CEO, Angelo Mozilo, were sued yesterday by the states of California and Illinois for hiding fees and using false marketing claims, said California Attorney General Jerry Brown and Robyn Ziegler, a spokeswoman for Illinois Attorney General Lisa Madigan. Countrywide was the biggest U.S. subprime lender in 2006 and 2007, according to Inside Mortgage Finance, a Bethesda, Maryland- based industry newsletter. Subprime mortgages were available to borrowers with bad or incomplete credit histories.