BofA (BAC) May Consider 'Nuclear Option' for Countrywide
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Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 2.8%
Revenue Growth %: -1.9%
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Reports Friday morning have Bank of America (NYSE: BAC) considering putting it's Countrywide arm into bankruptcy should litigation costs begin to cripple the bank. When BofA took over the unit in 2008, it was kept as a separate entity from the bank, meaning it would be able to seek legal relief from the unit without suffering harm to the overall bank.
However, these are simply talks, and a "nuclear option" CEO Brian Moynihan might exercise to gain leverage against plaintiffs in litigation. BofA knows what sort of market turmoil could arise from casting undue doubt about the financial strength on the largest bank in the U.S. A filing isn't expected anytime soon, Bloomberg notes.
BofA has already booked about $30 billion in costs for faulty home loans, a number some analysts see doubling in the next few years.
Bankrupting Countrywide could split up its assets for creditors, substituting one type of litigation for another, according to one law professor at the University of Texas. In deciding to bankrupt the unit, BofA would need to assess whether the potential savings on the move would outweigh disavowing some of the firm's obligations.
But in doing so, BofA might put itself at risk of a downgrade by ratings agencies, affecting its ability to borrow from other lenders.
Currently, Countrywide has about $11 billion in assets that could be depleted through demands to resolve mortgages. BofA would have no obligation to pay claims from Countrywide's creditors above and beyond that, a Barclays analyst said in a recent note.
Last month, large U.S. insurer American International Group (NYSE: AIG) sued BofA, not Countrywide, saying the bank was responsible for about $10 billion of Countrywide's mortgage bonds. In not wanting to take a chance, AIG aimed the suit directly at BofA, not Countrywide, for fear the unit might be thrown into bankruptcy. Others may follow suit.
With $6.53 billion of current debt on the books, lawsuits aflutter, and increasing step up demands with Fannie Mae and Freddie Mac, BofA may have to get 'nuclear' real soon.
Shares are down 0.8 percent early Friday.
Reports Friday morning have Bank of America (NYSE: BAC) considering putting it's Countrywide arm into bankruptcy should litigation costs begin to cripple the bank. When BofA took over the unit in 2008, it was kept as a separate entity from the bank, meaning it would be able to seek legal relief from the unit without suffering harm to the overall bank.
However, these are simply talks, and a "nuclear option" CEO Brian Moynihan might exercise to gain leverage against plaintiffs in litigation. BofA knows what sort of market turmoil could arise from casting undue doubt about the financial strength on the largest bank in the U.S. A filing isn't expected anytime soon, Bloomberg notes.
BofA has already booked about $30 billion in costs for faulty home loans, a number some analysts see doubling in the next few years.
Bankrupting Countrywide could split up its assets for creditors, substituting one type of litigation for another, according to one law professor at the University of Texas. In deciding to bankrupt the unit, BofA would need to assess whether the potential savings on the move would outweigh disavowing some of the firm's obligations.
But in doing so, BofA might put itself at risk of a downgrade by ratings agencies, affecting its ability to borrow from other lenders.
Currently, Countrywide has about $11 billion in assets that could be depleted through demands to resolve mortgages. BofA would have no obligation to pay claims from Countrywide's creditors above and beyond that, a Barclays analyst said in a recent note.
Last month, large U.S. insurer American International Group (NYSE: AIG) sued BofA, not Countrywide, saying the bank was responsible for about $10 billion of Countrywide's mortgage bonds. In not wanting to take a chance, AIG aimed the suit directly at BofA, not Countrywide, for fear the unit might be thrown into bankruptcy. Others may follow suit.
With $6.53 billion of current debt on the books, lawsuits aflutter, and increasing step up demands with Fannie Mae and Freddie Mac, BofA may have to get 'nuclear' real soon.
Shares are down 0.8 percent early Friday.
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