BofA-Countrywide: An Acquisition Which Makes Sense

Countrywide shares are up over 40% today as the WSJ reports the company might be taken over by Bank of America.

You gotta love the WSJ’s hedging:

It isn’t clear how quickly a deal might be struck, but two people familiar with the matter said it could occur very soon. It also is possible that an agreement could be delayed or fall apart altogether.

It’s also worth checking out the NYSE press release:

In view of the unusual market activity in the company’s stock, the Exchange has contacted the company and requested that the company issue a public statement indicating whether there are any corporate developments which may explain the unusual activity.

The company declined to comment.

They’re probably so stunned their stock is going up rather than down that they have no idea what else to do.

It would make sense for BofA to buy Countrywide: the Charlotte bank has deep enough pockets to be able to sustain any last losses that might still be lurking in Countrywide’s portfolio, and by buying Countrywide at a steep discount it would get very cheap market share in the mortgage business.

What’s more, Countrywide has big liquidity problems, which would be solved at a stroke if it was bought by BofA. That alone justifies today’s share-price hike.

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