And award for worst deal in modern banking goes to....
Wake up and good morning. It's one of the most competitive awards out there... the worst deal in modern banking. But the award goes, hands down, to Bank of America's What Were They Thinking executives for buying the totally toxic Countrywide Mortgage business in 2008.
This is the mortgage company that has become the symbol of home lending gone wild, of personal greed and corruption, of political favor and excess, and of regulatory oversight gone blind. Countrywide was the creation and eventual mutation of its ex-CEO, Angelo Mozilo (shown above, AP photo). Want to know more than you dare about Mozilo? Read this New Yorker profile.
Countrywide is the big reason this week that Bank of America agreed to pay $8.5 billion to resolve bondholder claims over soured mortgages. That settlement will contribute to a second-quarter loss of $8.6 billion to $9.1 billion, or 88 cents to 93 cents a share. Bank of America also said it's adding $5.5 billion to a liability reserve for future loan-repurchase demands and will record $6.4 billion in other charges including legal costs and a write-down of mortgage-unit goodwill.
All in all, we're talking about a $20 billion hit. And don't assume this will be the last of the mortgage damage to BofA.
Countrywide, as one Bank of America director told the Wall Street Journal, is the "worst deal we ever made." Well, that recognition is better late than never.
Congratulations, BofA and Countrywide.
-- Robert Trigaux, Business Columnist, St. Petersburg Times