BofA’s Countrywide bid falls by $1 billion

Countrywide’s continued bleeding of cash (more than $2.5 billion over the last 3 quarters) has reduced the value of the Bank of America buyout deal by a billion dollars, reports Bloomberg. The original $4 billion bail out is now valued at a $3 billion deal.

The retail branches, servicing portfolio and remarketing opportunity numbers must pencil out at some huge profit number for BofA to put up with the political, publicity and legal nightmare that is Countrywide.

From Bloomberg on the shaky deal:

Bank of America Corp.’s offer for Countrywide Financial Corp., the biggest U.S. mortgage lender, has lost $1 billion, or a quarter of its value since January, as the housing slump points to additional losses for lenders.

After four months of falling share prices, Bank of America’s stock swap is valued at $3 billion, compared with about $4 billion when the deal was announced on Jan. 11. While investors would get stock valued at $5.13 a share, Countrywide trades for 6 percent less. Investors are being scared off by weak home prices and legal risks, said Abigail Hooper, managing director of merger arbitrage hedge fund Havens Advisors.

Bank of America Chief Executive Officer Kenneth Lewis bailed out Countrywide after rising defaults and foreclosures left the Calabasas, California-based lender on the brink of bankruptcy. Bank of America said last month that it may not guarantee all of Countrywide’s debt, increasing concern about a default. A federal investigation into lending practices could disclose more problems, said Hooper.

“If they were to find something that suggested fraud, this company could go into bankruptcy,” Hooper said. “Right now people in the arb community don’t want to take that kind of risk.” Hooper said her New York-based firm has a “small position” in Countrywide.

Countrywide is under federal investigation as to whether officials misrepresented the company’s financial position and quality of its mortgages in regulatory filings, a person with knowledge of the probe said on March 8. In its first-quarter report, Countrywide said it has been told by the Justice Department that the Federal Bureau of Investigation can’t confirm or deny whether a probe is being conducted.

“The investing public is slowly coming to the conclusion that this train wreck was just in the beginning stages,” said Julian Mann, a mortgage and asset-backed bond manager at First Pacific Advisors LLC in Los Angeles, which manages $11 billion. “If I was Ken Lewis, I might be reconsidering this deal. Obviously, the shareholders are not excited.”