The latest scare on Wall Street in that Bank of America will act to unilaterally cut the price that they are paying for Countrywide by more than half to $2 a share. The scare has been precipitated by an analyst note from Friedman Billing Ramsey. The analyst reasons that Bank of America is likely to take a $30 billion write-down on Countrywide assets and therefore it wants to come bank to the table to lower the bid. What this zit-faced analyst fails to understand, however, is that lowering the bid as suggested essentially screws the equity holders out of $1 billion. Bank of America isn't going to screw with equity holders (many of whom are employees that BoA seeks to retain) out of money to cover 3% of its loses. They are either going to walk or they are going to do the deal - they aren't cutting their prices. This just shows how naive, inexperienced and unattached from the real world most of these analysts are. I also wonder how FBR still has standing to write about anything - these guys levered their business to the mortgage sector and drove their own stock from $20 to $1.

 

Submitted: May 6, 2008    Views: 291    Comments: 0    Likes: 1   


View Article: http://online.wsj.com/article/SB121001133399468197.html


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