BUSINESS

Bank of America's Takeover of CountryWide Mortgage

Bank of America's Takeover of CountryWide Mortgage

Introduction

Earlier this year, Bank of America announced that it would take over Countrywide Mortgage for a price of $4.1 billion in stock. This is an attempt on part of the Bank of America to save the United States' bigger mortgage companies. This deal would also allow the Bank of America to expand the scope of its financial services and expertise and transform itself in to the United States' largest consumer bank.

Not only this, but the deal would also make Bank of America, based in Charlotte the country's largest mortgage and loan service provider to consumers.

According to officials at Bank of America, the takeover would mean that Countrywide would continue to operate under the same brand name till the year 2009, before it is integrated into Bank of America. (Clemmitt, 2007).

The deal allows a 7.5 percent discount on the prices where Countrywide share end before the weekend. The deal was seen as a rescue move and widely debated over the media. But the deal also meant that Bank of America would also have to incur the $2 billion loss that Countrywide made in the month of August in the name of investments during the peak of the financial crisis of 2007 hit the United States economy.

The merger between Bank of America and Countrywide was regarded by many as the rescue move by financial experts following the merger between FleetBoston Financial and MBNA. The chief executive officer at Bank of America considered the deal as a purchase of a financial winner. The rising loses and irregularities at Countrywide Mortgage along with foreclosures were seen by the Bank of America CEO as short term challenges in the housing sector that his company would be able to resolve.

Due to the loses and foreclosures that Countrywide Financial was facing made the merger a cheap deal and allowing Bank of America to add to its existing portfolio of financial services and products.

Bank of America chief executive, Lewis, was seen by many in the economy as a savior in the time financial crisis. Lewis was confident that the deal would serve as an opportunity for Bank of America to strengthen its financial muscle. By acquiring Countrywide, Lewis assumed that the takeover would be a cornerstone in restoring the confidence that consumers had lost in the housing and mortgage sector.

The deal also allowed the government to focus on other pressing matters rather than preparing another bailout package. The merger was also an indication that Bank of America, an American corporation, was willing to set straight the domestic economy. The deal brought with it about 9 million foreclosed houses that were under the mortgage of Countrywide Financial. To further this point, the government was also not interested in taking responsibility of bringing Countrywide Financial on track. (McLean et al, 2010).

Takeovers and Acquisitions

Experts believed that even though there were positives of this deal, a significant amount of risk also accompanied the ...