Countrywide Move A Low-Risk Bet For Bank of America
Praised for helping save the markets from meltdown, Bank of America’s investment in Countrywide Financial may be a low risk bet for BofA’s shareholders, but is not as altruistic as it might seem, breakingviews.com suggests.
Writing in today’s Wall Street Journal (subscription required), breakingviews notes that if the California-based mortgage lender recovers and prospers again, BofA can convert its investment into stock at $18 a share — or less than 80% of book value.
Yet the agreement states that the conversion price “may be adjusted upon the occurrence of certain events,” possibly giving BofA enormous wriggle room should Countrywide’s predicament deteriorate.
BofA may have struck a heads-I-win, tails-you-lose agreement.
That should please shareholders, breakingviews says, but investors shouldn’t mistake this for an act of altruism.
CreditSights seems to concur. In its analysis of BoFA’s 8K filing (available for purchase here) CreditSights sees BofA’s move as “renting with the option to own coupled with a broader liquidity confidence play.”
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