The Worst Deal In History

Last year, when I made an aside about Bank of America's decision to purchase Countrywide as having been, for B of A, "a Pandora's Box, filled with horrors and plenty of pain," a reader wrote to tell disagree, asserting that B of A got plenty of value. I thought the guy was daffy then, and ten months later, I still say he's daffy, and I'm not alone. According to a recent Wall Street Journal article, Countrywide has cost B of A a cool "$40 billion in real-estate losses, legal expenses and settlements with state and federal agencies."

"It is the worst deal in the history of American finance," said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. "Hands down."

[...]

The total costs from Countrywide to date, according to people close to the bank, include $34.5 billion chewed up by a combination of consumer real-estate losses since mid-2008 and funds set aside to pay back investors who allege Countrywide wasn't honest about the quality of mortgage-backed securities it issued before the crisis. Additional legal costs from various settlements with federal and state agencies and the initial Countrywide purchase amount push total costs over $40 billion, these people said.

But the tally could go higher. Bank of America has said it could face an additional $5 billion in possible losses, and scores of lawsuits seeking to pin Countrywide's liabilities on Bank of America are pending in courtrooms around the U.S.

In the world of bank acquisitions, as in many other endeavors, such as professional golf, some days you eat the bear and some days the bear eats you. What Bank of America thought was Jack Nicklaus (the "Golden Bear") turned out to be a Grizzly named Old Nick. Better luck next time, B of A.

And to my erstwhile correspondent: Do NOT listen to the voices in your head that compel you to write me about Countrywide.