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Bank of America and Countrywide to Merge? It'll Never Happen...
By Ian Cooper
Every one and their grandmother are racing into shares of Countrywide (CFC) because the Financial Times reported that Countrywide and the Bank of America (BAC) are in alliance talks. Even CNBC, which helped fuel many past rumors that turned out to be false, is reporting on the possibility of a deal. According to the reports, Bank of America and Countrywide held alliance talks, but that the talks are in early stages and may never lead to a deal.
You may want to use that real possibility to go short the company. Even my sources are telling me that many analysts expect for CFC to give back gains as investors slowly begin realizing that the Bank of America isn’t likely to buy CFC. These are the same sources that told me that Gap wasn’t on the buy out block, which turned out to be true.
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Even Prudential has noted that, “We doubt Bank of America would purchase Countrywide. Bank of America previously said it didn’t want to purchase a thrift bank, or a bank that uses deposits mostly to finance mortgage loans.” Sandler O’Neill, too, said it doubts the validity of the speculation. As reported by MarketWatch.com, Sandler O’Neill said, “We believe a more likely scenario is that Bank of America might be considering outsourcing its mortgage processing to CFC.”
An outsourcing deal is more likely. CFC is the biggest originator of residential mortgages in the United States with 15% of the market. Bank of America has about 5%. While a buyout is not likely, an outsourcing deal with CFC would be a good strategic move for BAC.
Take care,
Ian L. Cooper, Editor, Early Alert Trader