Saturday, July 26, 2008

Follow Up - Bank of America and Countrywide

On Thursday evening I finally sat down to read my latest copy of Condé Nast Portfolio (August 2008).  In it was a great article by Daniel Golden called "Angelo's Many 'Friends'" on Countrywide Financial and the "Friends of Angelo" (F.A.O.).  It named names and described how and how much the powerful benefited from their positions.  From political powerhouses to corporate partners, being a F.A.O. had its benefits.

What brings this particular magazine to today's blog though was the article within the article by Anthony Bianco called "What was Ken Lewis Thinking?"  For those not familiar with the name, Ken Lewis is the CEO of Bank of America (BAC).

This article gave some background on Lewis, and how Wall Street had been wrongly against him after his deals to acquire FleetBoston Financial in 2003 and credit-card specialist MBNA in 2004.  The article was bound together by saying Lewis's job was on the line, but if you review the success he has had, and the fact that no matter how things looked in the beginning with his deals (he also engineered the NationsBank and Bank of America merger in 1998), it has not been a good idea to bet against him.

Lewis has run a conservative ship that looks to grow the customer base of BAC while being able to generate savings and higher profit margins by placing BAC's $530 billion loan portfolio in the hands of the Countrywide servicing unit.  This could spell earnings in the coming years for the shareholders of BAC.

There could obviously be trouble on the horizon with the various lawsuits filed against Countrywide that are ultimately the responsibility of BAC, but if the past history of Lewis means anything, the lawsuits will be mere bumps in the road while BAC reaps the rewards of this merger for years to come.

As Lewis said on a conference call with Deutsche Bank, "All I can say is nothing has happened that is out of the boundaries of what we contemplated when we did the deal."  When asked on the conference call what would happen if housing prices declined in excess of the consensus forecast of 25%, Lewis replied, "If that's the case, we'll be worried about Countrywide, but we'll be worried about a lot of other things too - and not just at Bank of America."

Both articles are definitely worth a read.

Sources - Condé Nast Portfolio

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