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Write To Congress, Stop The Mortgage Bailout
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12:51 pm
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Stop the mortgage bailout! Don't reward people who made bad or stupid choices with public money while people who acted responsibly get nothing.
http://www.angryrenter.com |
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It Ain't Over: Bank of America May Walk On 40 Bn Of Countrywide Bonds, Citi To Restructure Old Lane
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12:53 pm
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Bank of America May Not Guarantee Countrywide's Debt (Update6)
By David Mildenberg
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May 2 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. bank, said it may not guarantee $38.1 billion of Countrywide Financial Corp.'s debt after taking over the mortgage lender, increasing the likelihood of a default.
``There is no assurance that any such debt would be redeemed, assumed or guaranteed,'' the bank said in an April 30 regulatory filing, adding that no decision has been reached. Investors had grown more optimistic the bank would back Countrywide debt. Ratings firm Standard & Poor's cut the mortgage-lender's debt to junk today after saying it would raise the grade earlier this week.
Prices on instruments that protect investors from a Countrywide default made their biggest jump in almost four months. Bank of America agreed in January to buy the largest U.S. mortgage lender amid speculation that the worst housing market since the Great Depression would bankrupt Countrywide. Bondholders are counting on the merger to put Bank of America's AA credit rating behind Countrywide's $97.2 billion of debt.
Countrywide's $1 billion of 6.25 percent notes due in 2016 fell 10 cents to 82 cents on the dollar in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt dropped to about half that price in January before Bank of America announced the purchase of Calabasas, California-based Countrywide.
Questions About Debt
``I'd be quite concerned if I was a bondholder if the intent of Bank of America is as it reads in the filing,'' said Gary Austin, founder of PDR Advisors LLC in Charlotte, North Carolina, where Bank of America is based. PDR manages about $600 million and doesn't hold Countrywide debt.
Credit-default swaps tied to Countrywide's home-lending unit climbed 135 basis points earlier today to 290 basis points, according to London-based CMA Datavision. The instruments pay buyers if a company breaks its debt agreements, and a rising price shows investors are more concerned about default.
Bank of America's debt topped the list of the most actively traded investment-grade bonds, according to Trace.
Investors have been asking Bank of America about plans to back Countrywide's debt since January, when the issue was raised in a conference call to discuss the merger. The bank has demurred ever since. Bank of America spokesman Scott Silvestri said today that the filing ``just means we haven't made a decision.''
Merger Doubts
The $4 billion purchase of Countrywide is scheduled to close in the third quarter. Investors have speculated Bank of America may seek a lower price or cancel the deal because U.S. home prices and sales have deteriorated.
``This confirms how tenuous this transaction is,'' said Christopher Whalen, managing director at Institutional Risk Analytics, a banking research firm in Torrance, California.
Whalen expects Bank of America to absorb the best assets, including Countrywide Bank, while the debt remains with a new company created by the merger, Red Oak Merger Corp. Red Oak may then file for bankruptcy, shielding Bank of America from liability, Whalen said.
Bank of America Chief Executive Officer Kenneth Lewis is a ``tough guy and he's got to protect his shareholders,'' Whalen said.
The wording in the bank's filing is new, Victoria Wagner, a credit analyst at Standard & Poor's Corp., said in an interview yesterday.
Ratings Change
Standard & Poor's cut Countrywide's credit rating today to junk, citing doubt on whether Bank of America would back the home lender's debt. The move came two days after S&P said it might raise Countrywide's ratings. Standard & Poor's now rates Countrywide at BB+, eight notches below Bank of America's.
Bank of America rose 1 percent to $39.79 at 4:15 p.m. in New York Stock Exchange composite trading. Countrywide dropped 1.1 percent to $5.98.
Bank of America has stopped short of explicitly guaranteeing Countrywide's debt since announcing the acquisition. Executives don't want to get into details on how the legal entities will be structured, according to credit analysts Kathleen Shanley of Gimme Credit LLC and David Hendler of CreditSights Inc.
Countrywide's finances have worsened since the merger announcement because of falling house prices in California, which accounts for about 40 percent of its lending. The company reported a first-quarter loss of $893 million as late payments and foreclosures soared. Lewis has reiterated Bank of America's commitment to the deal, citing long-term benefits of becoming the largest U.S. mortgage lender.
Credit Lines
``If bondholders get stiffed by Bank of America, it will scare the hell out of everyone,'' Whalen said. ``This is called thinking the unthinkable.''
Countrywide debt included $11.5 billion in credit lines at the end of 2007 and $47.7 billion in advances from the Federal Home Loan Bank Board. Bank of America said the credit lines will be paid when the merger is completed, while the advances will remain outstanding.
The remaining debt, about $38.1 billion, would equal about 2.4 percent of the bank's total liabilities at the end of last year, according to the filing.
Among the biggest debt holders is Los Angeles-based Capital Research & Management Co., with $630 million, according to Bloomberg data. Capital Research doesn't discuss its holdings, spokeswoman Maura Griffin said.
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NEW YORK, May 2 (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research) said it is looking at restructuring Old Lane, a hedge fund co-founded by Vikram Pandit, the bank's chief executive.
Nearly all investors unaffiliated with the fund have requested to redeem their money from the fund, Citi said in a regulatory filing.
Citi bought Old Lane last year for more than $600 million, but the fund's performance has since been disappointing. Citi wrote down $200 million of intangible assets linked to the acquisition in the first quarter.
Citi also said in its quarterly filing that its recently announced sale of most of CitiCapital to GE Capital, a unit of General Electric Co (GE.N: Quote, Profile, Research), would result in an after-tax loss of about $325 million.
The sale of CitiStreet to ING Groep NV (ING.AS: Quote, Profile, Research) (ING.N: Quote, Profile, Research), announced earlier on Friday, would result in an after-tax gain to Citi of $200 million, according to the filing. CitiStreet is a joint venture with State Street Corp (STT.N: Quote, Profile, Research). |
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