No Bail Out For Countrywide Executives

Why is Bank of America even thinking of buying Countrywide? It is like throwing good money after bad. Late in the summer BAC bought the CFC preferred that had a conversion price in the upper teens and then as the CFC common lost around 70% of its value, the BAC preferred was taken with it. Better to write off this loss and move on. CFC is a box of unknowns. Their credit losses could wipe away a large portion of BAC equity. I certainly don't want to see CFC go under, as they service around $1 trillion of outstanding mortgages. But what would be worse - CFC going under, or CFC going under and taking BAC under with it? Even if CFC were to go under, the CFC equity holder would be wiped out but then somebody else could buy the loans and the servicing part of their business. The $1 trillion in outstanding loans would be in tact.

Fri morning thoughts:

As the deal is official at least shareholders who have already taken a beating are going to get something out of this. But the executives should not be rewarded. There should be no golden parachute or bonuses for executives in this deal. Shareholders should unite and strongly squash the idea of any executive bonuses in this deal. Shareholders have the power as they own the company. Time for CFC management to take their medicine as shareholders have already received a dose. Bank of America should not save Countrywide management and shareholders should not approve bonuses to CFC executives. After all those executives are the ones who mismanaged the company to the brink of extinction.

Disclosure: I have no position in CFC but did trade it on the long side during the day (Thursday). I have no BAC disclosure. The firm I advise may take positions in any of these stocks at any time on the long or short side.