Countrywide Buyout: Who Wins, Who Loses?
You’ve probably heard about the buyout of troubled mortgage giant Countrywide Financial Corporation. Bank of America is buying
Countrywide, whose shares have lost more than 85% of their value since May, 2007. Sale price: $4 billion. Actually, one could say that you are helping finance this venture. Read on!
Chances are that Angelo Mozilo, Countrywide’s co-founder, probably won’t have to scrape by too badly whenever he leaves the company. He took home more than $48 million in compensation during 2006. Depending on the circumstances of Mozilo’s departure, he could wind up getting tens (if not hundreds) of millions of dollars in other compensation and perks, based on obligations made when Countrywide was doing well. His severance package, negotiated before the buyout, included use of the company’s aircraft, office space, payment of annual country club dues and a payment equal to the excise tax charged to him as a result of certain benefits.
You. That’s right. Bank of America, which is healthy and profitable, will be able to deduct some of Countrywide’s losses from its taxable income. That means U.S. taxpayers will take the hit. How much are we talking about? Possibly half a billion dollars over the first five years, according to tax expert Robert Willens.
And what about the people holding Countrywide mortgages … how will they come out?
Some financial experts predict they will wind up in better shape as a result of the deal. That’s because Bank of America, unlike Countrywide, stayed away from the subprime lending market and, as a result, was largely insulated from the kind of loans that got Countrywide in so much trouble to start with. Bank of America, some predict, might restructure some of those loans or even convert them to prime loans, something Countrywide was unable to do.
Bank of America has already publicly stated that it will not be originating any subprime loans after the merger is completed. Others in the financial industry don’t share as optimistic a viewpoint about the merger’s effects on existing loan holders.Â They say the buyout may mean little more than a change in name.