Friday, January 11, 2008



Bank of America’s purchase of Countrywide has been interpreted by experts as a huge vote of confidence in the beaten down mortgage market or in our financial system in general, exploitation of an opportunity to buy what remains a viable business at 20% of book, or an offer from the Treasury Department and the Fed that B of A couldn’t refuse.

Todd Hagerman, a bank analyst at Credit Suisse, comes closer when he says that B of A has “a vested interest in protecting their (sic) investment.” Ken Lewis has a vested interest in shoring up his ego. He was the guy who bought a big chunk of Countrywide at $18 in August only to see the stock trade below $5.00. No CEO wants to be seen as being as foolish as he is, especially when he can use other people’s money to try to salvage a misguided investment and his reputation. This purchase by B of A looks like a case of Ken Lewis’s averaging down with shareholders’ money in a desperate bid to save his reputation, and his job.

I also like the “offer B of A couldn’t refuse” theory, given the demonstrated “free market until the tough guys on Wall Street feel a touch of discomfort” philosophy of the Bush administration and the Bernanke Fed.

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