So far, the July 2008 acquisition of Countrywide Financial has brought to Bank of America’s table, $197 billion in lawsuits. The bank is in a mess and there appears no relief to the state that the beleaguered entity is in at present. There is one quick-fix solution though – a spin-off!
During the acquisition, the Charlotte-based bank made a series of transactions which made it liable for every default made by Countrywide in future. One of them which AIG has highlighted in its lawsuit is that even before the acquisition was completed in July 2008, Countrywide Financial had sold Countrywide Home Loans (its subsidiary) to NB Holdings (BofA’s subsidiary). And because it was BofA, which paid in total the consideration, it therefore became liable for future issues arising out of all of Countrywide Home Loans’ past dealings. The mistake BofA made was that it merged its operations with that of Countrywide Financial (in the case of an acquisition, operations of the two companies can be kept separate). Therefore, declaring Countrywide bankrupt today, would be declaring BofA bankrupt – an infeasible cure to its woes.
In such a hopeless situation, every drop of rain seems to convince the market that BofA is fertile. The injection of $5 billion by Warren Buffett on August 25, 2011, was one. The fact that Buffett’s investment sent the bank’s stock soaring 20.02% in just two trading sessions is an indication. Fact is: the infusion gives BofA a chance at improved financials over the next two quarters. Not more. But for Buffett, it’s a case of creating fire from a block of ice. As per the deal, Berkshire will receive 50,000 preferred shares at a fixed divided of 6% (amounting to $300 million p.a. – $821,917.81 a day), irrespective of BofA’s performance or condition. In case BofA wants to buy back that stake, it will need to pay a premium of 5% to Buffett. It’s time BofA investors realise that this deal is about Berkshire’s investors’ wealth. Not theirs.
As for BofA, the mess that it is in will only get worse, as clients get kinder with multi-million & multi-billion dollar class-action suits. [The latest following the AIG suit is that by Western & Southern Life Insurance Co., filed on August 25, 2011, for $63 million.] Till date, 90 suits have been filed against BofA (related to Countrywide), demanding a total of $197 billion – 131.7% more than what BofA is worth today! Enough sign. It’s time that BofA spins-off the ailing unit. Remember – ghosts don’t stop haunting. Not even those from the sub-prime times.
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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In such a hopeless situation, every drop of rain seems to convince the market that BofA is fertile. The injection of $5 billion by Warren Buffett on August 25, 2011, was one. The fact that Buffett’s investment sent the bank’s stock soaring 20.02% in just two trading sessions is an indication. Fact is: the infusion gives BofA a chance at improved financials over the next two quarters. Not more. But for Buffett, it’s a case of creating fire from a block of ice. As per the deal, Berkshire will receive 50,000 preferred shares at a fixed divided of 6% (amounting to $300 million p.a. – $821,917.81 a day), irrespective of BofA’s performance or condition. In case BofA wants to buy back that stake, it will need to pay a premium of 5% to Buffett. It’s time BofA investors realise that this deal is about Berkshire’s investors’ wealth. Not theirs.
As for BofA, the mess that it is in will only get worse, as clients get kinder with multi-million & multi-billion dollar class-action suits. [The latest following the AIG suit is that by Western & Southern Life Insurance Co., filed on August 25, 2011, for $63 million.] Till date, 90 suits have been filed against BofA (related to Countrywide), demanding a total of $197 billion – 131.7% more than what BofA is worth today! Enough sign. It’s time that BofA spins-off the ailing unit. Remember – ghosts don’t stop haunting. Not even those from the sub-prime times.
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
