Herb Greenberg's speculations on the merger

1. The Fed is behind the deal.
2. The Fed is behind the deal because the rumors yesterday of a near bankruptcy were probably true.
3. As part of the deal, the government likely agrees to guarantee BofA against Countrywide-related losses.
4. Lost in the in the noise yesterday was that Moody’s downgraded the ratings on 30 (count ‘em — THIRTY!) tranches of Countrywide’s mortgage debt by more than a few notches. They did something similar before American Home Mortgage filed for bankruptcy.
5. Investors bid the stock higher assuming a premium when it’s likely that BofA still needs to fully assess the value of the assets before the deal’s full value will be known.
6. Big question, of course, is what Countrywide investors will get.
7. Rule of thumb with bankruptcies: Stocks often double on their way to zero.
8. BofA gets a free bank and a put to the government.

Another perspective: BofA's awesome Countrywide tax break

When I worked at BofA, they didn't pay taxes. There are ways to structure the earnings so they'll never pay taxes.

Mark McSherry | January 11

Reuters - Similar deals are expected to follow Bank of America Corp's agreement on Friday to acquire battered mortgage lender Countrywide Financial Corp for a knock-down price of $4 billion in stock.

As the mortgage crisis and credit crunch take their toll, merger speculation is now centered on other lenders including Washington Mutual Inc, First Horizon National Corp, National City Corp and KeyCorp.

All have suffered mortgage and real estate-related problems and shares in all four rose on Friday on the Countrywide deal.

Analysts also talked up the possibility of Bear Stearns Cos Inc being involved in a major transaction, despite a statement on Tuesday by its new chief executive, Alan Schwartz, that being acquired is not a strategy for the firm.


more