BofA backing off Countrywide deal?

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Dr. Nouriel Roubini examines the effects of the increasingly-likely scenario of Bank of America backing away from its commitment to buy Countrywide as lawsuits, corporate debt and rising delinquencies make Countrywide look less and less attractive as an acquisition target.

This is a no-brainer to me. Bank of America thought Countrywide was a good target for the following (as hashed out by smart readers at the time of the original announcement):

The massive Countrywide servicing portfolio to cross-market BofA products
The mid-Western retail branch presence to expand its retail banking operations (BofA is strong on the coasts, not so much in the middle of the country)

With credit tightening, equity disappearing (disappeared?) and the job market in the tank the arguments for increased retail consumer banking and credit opportunities is a pretty thin one. Pile on the coming wave of class-action suits relating to subprime and negative-amortization loan lending and Bank of America would be stupid not to be strongly considering walking away and letting Countrywide die the death it needs to die.

From the RGE Monitor (subscription required to read the entire article):

It looks increasingly likely that the deal of Bank of America (BAC) buying Countrywide (CFC) may collapse: according to many banking experts once BAC does its due diligence on this deal it will become obvious that Countrywide is effectively bankrupt (negative equity) and saddled with a mountain of litigation and potential liabilities whose size are likely to be extremely large and uncertain. The point that is becoming clear is that BAC will be better off paying the modest break-up fee and walk away from a deal that sucks in every dimension. So if CFC goes bankrupt (its bank subsidiary into a FDIC receivership and the holding company into Chapter 7 liquidation) what will be the systemic implication of the biggest banking bust in US history? Remember that CFC originated almost 20% of all mortgages in the US in the last few years. So the collapse of the biggest mortgage lender will have massive and systemic ripple effects in financial markets.