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Friday, February 25, 2011

The Cost of Stupidity : BAC : Past Present Future

I understand there are no EASY buttons in the investment world, but sometimes you have to wonder WHY some companies do things that are just so STUPID.  When a company does something so unbelievably stupid in the past, you have to look at what this event is doing to the present dynamic of the company to determine if you should buy the company for profits in the future. 

Case and point:  Bank of America's purchase of Countywide AFTER the housing market collapsed.  Bank of America bought Countrywide in the first part of 2008, when the housing market was collapsing faster than Lindsay Lohan's career (that is FAST people!).
BAC paid over $4.0 billion for Countrywide in stock, after they had already dumped $2 billion at $18 a share-- all of this was done in 2008 during the same time that Countrywide as a company was quickly falling to having $0 in equity and a $0 stock price.

All in, BAC paid over $6 billion for Countrywide in 2008. BAC is stupid
In Countrywide, Lewis gets the “best, total mortgage-banking company in the U.S. by far,” Hendler said. Countrywide’s sophisticated back office is a valuable asset that makes Bank of America a much bigger competitor with Wells Fargo & Co., Washington Mutual Inc. and others, he said. In 2007, Countrywide had $408 billion in mortgage originations and has a servicing portfolio of about $1.5 trillion with 9 million loans.

They bought Countrywide to compete with WASHINGTON MUTUAL in 2008... 2008, not 2004! I don't know if there has been a more STUPID deal ever... EVER... I'm guessing there is one out there, and if you know of one, please leave a comment on which deal that would be.

Chase picked up Wamu 8 months later for $1.9 billion, but that included over $900 million in deposits (albeit a bail-out and not a purchase-- Jamie Diamond's deal with the devil is a different topic what-so-ever!).


Today, BAC is being charged by investors for misrepresentation of Countywide loans.  People want money for crap mortgages from 2006.

Last month BAC took a $6.1 billion write down from the Countrywide acquisition.

BAC's recent write down was eqaul to the price BAC paid for CFC in 2008!


If you were forced at gun point to put your money into BAC right now I would say take the bullet.  BAC is paying the ultimate price in share destruction because of the Countrywide Disaster.  This will only get worse as the ball unravels with each passing day.

BAC trades over $14 today.  Why is this stock in the double digits?  I guess everyone gets a little kick from QE2 much.  There are truckloads of legal fees about to slam BAC in 2011 from the foreclosure robo-signer incident resulting from Countrywide trash loans.  Significant BAC legal fees in 2011.  This is not baked into the current price of this stock.  Any dip in financials and watch out below-- BAC falls hard. 

BAC as a stock and a company is a Bunch of Absolute Crap, and should be Bankrupt After Countrywide.  Dodd-Frank rules should strip profits from BAC while Countrywide's losses mount faster and harder with each default.  With each default, investors around the world will pile on BAC's back asking for cash.  Will BAC remain too big to fail?  Wizards who believe in magic (Bernanke et al) will determine that.

While none of the financials are sexy, BAC is the ugliest girl at the bar and she has some funky disease called Countrywide that is incurable.  To top it of, this BAC chick is just stupid... You can lose weight and you can buy nicer clothes, but you can't fix being stupid.

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