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..
