A Disaster Called Countrywide

Will Bank of America's purchase of Countrywide Financial Corp. go down in the history as the worst mortgage franchise purchase in world history? Chances are, the answer to that question is a resounding yes. But we won't know for several years – until all the beans have been counted and B of A finally tallies up its losses on CFC's on-balance mortgage holdings ($80 billion), plus all the legal settlements stemming from the nonprime residential garbage that Countrywide's securitization unit issued. (Let’s hope $8.5 billion is the worst of it for the banking/investment banking industry.) The key to understanding the CFC damage is this: year after year CFC was a top ranked issuer of nonprime MBS. During the past week many so-called experts were offering their views on what the settlement means for the other megabanks. But consider this: most – but not all – of the largest issuers of nonprime MBS weren’t commercial banks (at least at the time of issuance, that is.) They included: Bear Stearns (now deceased), Lehman Brothers (now deceased), Merrill Lynch (later bought by B of A), and Greenwich Capital (bought by Royal Bank of Scotland.) As the saying goes: stay tuned…