Investors bailed out of Countrywide Financial yesterday, sending its shares down 10 percent after an analyst said Bank of America would lower its price to as little as $0 a share and urged it to bail out of the deal.
The Wall Street Journal for some reason leads its C1 story with “people familiar” with Bank of America’s thinking saying its not trying to back out of $4.1 billion transaction or lower the price. But in the third paragraph it says Bank of America
has stepped up its scrutiny of Countrywide’s finances and underwriting practices for some loans. But a person familiar with the situation said while it is impossible to predict what might be found in the due-diligence process, the bank isn’t currently trying to build a case for a lower purchase price.
How’s that? You’d think B of A would have been going full bore looking at the books of its shaky acquisition from way before it even announced the deal back in January. The Financial Times is not much better, though it notes the bank has its own issues with write-downs of bad loans.
The New York Times on C1 is more skeptical—rightly—saying in its headline that the deal “is possibly in jeopardy” and emphasizing up high that Countrywide’s problems have gotten worse in the last four months. They include federal investigations into whether there was fraud at the mortgage lender, something the WSJ says B of A is looking at more closely.
The FT and The Charlotte Observer note that the analyst whose report triggered the sell-off also said if Bank of America buys Countrywide it would have to write off as much $30 billion in bad Countrywide loans. Late last week, Bank of America said it might not guarantee the $38 billion in debt that comes with Countrywide.
Deal Fever Quote of the Day from the skeptical analyst Paul Miller:
“They should walk away, but they will not,” Mr. Miller said, adding that it would be tough for “empire builders” like Mr. Lewis and his team to tolerate the damage to their reputation that would be caused by abandoning the deal. Instead, he thinks that Bank of America will try to renegotiate the deal for as little as $2 a share.
Sprint-ing away from Nextel
The Journal says on A1 that Sprint is weighing getting rid of its Nextel unit in an acknowledgement that the $35 billion deal, made just three years ago, is a “failure.”
The discussions at Sprint mark the latest unraveling in a merger that was troubled from almost the beginning. Three years ago, the deal was hailed as a way for Sprint to gain the scale it needed to go up against industry leaders Cingular Wireless, since renamed AT&T Inc., and Verizon Wireless. Nextel was a fast-growing carrier that brought a base of business customers who spent $15 to $20 more per month on average than other cellphone users. Nextel’s push-to-talk walkie-talkie technology gave its cellphones a feature other carriers couldn’t match.
Yet another deal gone bad.
Fannie and Freddie are sick
The NYT reports on A1 that an array of officials are wondering with good reason about the health of the huge quasi-governmental mortgage companies Fannie Mae and Freddie Mac. The paper buries news that some in the office that regulates it think the two may have to be bailed out, despite its top official’s public assurances.
The paper notes ominously that the two, which handle four-fifths of all mortgages since Wall Street abandoned the mortgage game, back their $5 trillion in assets with just $83 billion in capital.
The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.
And if Fannie or Freddie fail, taxpayers would probably have to bail them out at a staggering cost.
The Times says the government-sponsored enterprises, as the two companies are known, are resisting raising new capital to cushion losses and that “high-ranking government officials” are threatening to criticize them publicly if they don’t get fresh cash soon. At the same time, the government has moved to loosen restrictions on the companies so they can prop up the dismal housing market.