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BofA/Countrywide Deal Makes Sense, Despite The Cynics

Friday, 11 Jan 2008 | 9:16 AM ET

The Bank of America-Countrywide dealis less than two hours old, and already the cynics are out. It's a government approved bailout, cynics say. It's a government conspiracy to keep the market up, cynics say. Things look like they are worse than appears at Countrywide and BofA gets a deal in the long term, they say.

Regardless, the facts speak for themselves:

1) B of A has bought the largest mortgage lender in the country at a severely distressed price, in a business they have wanted to be in for a long time. They have confidence to commit to the business.

2) There are buyers for distressed assets and Countrywide will not be going bankrupt, which was a very real possibility and would have been a nightmare;

3) The deal makes business sense. Bank of America stood more to gain by buying them out than letting them go bankruptcy. They invested $2 billion in the company, and had perhaps $4 or $5 billion in warehouse lines of credit to Countrywide. This way they get the bank branches, and the mortgage service portfolio. They are the largest mortgage servicer in the country, with 9 million mortgages (B of A is the sixth largest).

With that said:

1) We don't know what the assets are worth;

2) It's too early to say it's a sign of a market bottom in housing.

3) Until the fundamentals improve, the majority still feel it will be difficult to keep a sustained rally in financials.



Questions? Comments? tradertalk@cnbc.com

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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