Ken Lewis CREATED HIS OWN bad situation(s). He didn’t have to even approach Merrill. Owning Merrill was completely unnecessary from a strategic standpoint.
If it was a bargain, it would have been useful. Merrill was initially looking like a bargain until one looks beyond/behind the 10K/Q. On an acquisition, one does not get to see behind the 10K/Q until the acquisition is started. This is why the material clause is in place when doing an acquisition.
He didn’t have to buy Countrywide. Everyone on this board had an inkling that Countrywide was an abortion before Ken Lewis decided to buy it.
But that ‘abortion’ has an interesting side note. If BofA bought it somewhere at 2 cents on the dollar and its true value is 10 cents on a dollar, he bought it cheap. In addition, he gets to write off losses that have not yet occurred, but that caused the sale price to be discounted against any real income that is generated by either unit(paper losses to real tax benefits). BofA was interested in Countrywide for the loan servicing business, which is currently generating income. Most of Countrywide’s loans were securitized 2 years before the BofA purchase (2 years is the period at which they can be forced back to the originator – forced buyback).
My real concern with BofA is in its Commercial Real Estate loan portfolio..[/quote]
Countrywide – even with the servicing business – had negative value. Merrill – even with the brokerage arm – had negative value. Countrywide had massive amounts of unsecuritized SFR mortgages on its balance sheet that it was unable to sell into the secondary market when BofA acquired it. These mortgages are a cesspool of losses that BofA is recognizing now.
As far as MAC clauses are concerned, if you do proper due diligence in the first place – which wasn’t done in either case – then the MAC clause is irrelevant.
Look, Ken Lewis wanted to acquire Countrywide and Merrill. Period. Everyone that reported to him knew this. And the tone of due diligence was reflected in this knowledge. And all the Yes Men that Ken Lewis had surrounded himself with gave him exactly what he wanted when due diligence was completed: “Yes, Ken, this deal is great! Let’s do it!” The naysayers don’t work for BofA anymore. And that’s how large-scale transactions work. Lewis was an acquisition-hungry serial destroyer of shareholder value just like his predecessor Hugh McColl. And now he’s finally out on his ass.
