BofA's awesome Countrywide tax break

[Crewleader]

Brace yourselves, taxpayers of America.
You're going to help Bank of America finance its $4 billion buyout of Countrywide.

By Allan Sloan, senior editor at large

NEW YORK (Fortune) -- Guess who's helping Bank of America pay for its $4.1 billion purchase of Countrywide Financial? Answer: The taxpayers of the United States.

That's because Bank of America (BAC, Fortune 500), which is solidly profitable, will be able to use some of Countrywide's losses to offset its own taxable income. The tax break could total about half a billion dollars over the first five years, according to an estimate by tax guru Robert Willens, who left Lehman Brothers Friday after a 20-year run and will be in business as Robert Willens LLC starting next week. The losses could be worth considerably more to Bank of America starting in the sixth year, depending on how big Countrywide's losses are when Bank of America formally acquires it.

At this point, of course, no one knows how much in losses Countrywide has run up since the junk mortgage market began souring and defaults accelerated. Countrywide (CFC, Fortune 500) itself probably doesn't know. But it seems almost certain to ultimately be in the billions.

In tax circles, Bank of America is famous for its 1988 purchase of the failed FirstRepublic Bank of Dallas, which was being auctioned off by federal regulators. Bank of America, then known as NCNB Corp., the parent of North Carolina National Bank, discovered a way to structure the deal to save $1 billion of taxes, using a convoluted strategy that none of the other bidders knew about. That allowed NCNB to outbid its rivals for the bank, and still come out way ahead.

http://money.cnn.com/2008/01/11/news/companies/sloan_countrywide.fortune/index.htm?postversion=2008011115

[still_one]

1. Is it illegal? Much of the banking deregulation was propagated by Bill Clinton

[flashl]

2. Moody rewards BoA

Moody's may downgrade Bank of America

NEW YORK (AP) - Moody's (News) Investors Service may cut its ratings on Bank of America Corp (News) .'s credit after the bank said it planned to buy Countrywide Financial Corp., the credit-rating agency said Friday.

Moody's will review Bank of America for a possible downgrade based on the bank's ability and willingness to raise capital to support its balance sheet after completing the acquisition. Bank of America currently carries an investment-grade 'Aa1' rating from Moody's.

Earlier Friday, Bank of America said it would acquire the nation's largest mortgage lender and servicer in an all-stock deal valued at about $4 billion.

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[InkAddict]

3. Bank of America Should Not Be Allowed to Acquire Countrywide

http://www.bankofamericabadforamerica.org/

Nation’s fastest-growing union calls combination of US’ largest mortgage lender with largest bank when both institutions are facing mounting losses and potentially destabilizing risks bad for consumers, bad for business, and bad for America

[sendero]

4. BofA..

... already gave Countrywide 2 billion dollars. At the time, they probably thought it was a pretty safe investment

Presently, it's not looking very safe at all. Rather than see their 2 billion go valueless, they decided to buy the whole thing for 4 billion more.

Moody's is looking to downgrade their rating based on all the new risk they have just assumed.

It looks to me like everything makes sense, except perhaps that first 2 billion, I've thought Countrywide was a bankruptcy risk for months, they were the poster child for subprime lending. BofA took a gamble, and we'll see if they win or lose.