Ken Lewis' BofA Tab for Countrywide Up 50% Over 2008's Price

Three years ago next week, I wrote this post discussing Ken Lewis' purchase of the part of Countrywide which BofA, of which he was CEO, didn't already own, for some $4B.

Yesterday's Wall Street Journals Money & Investing section headline read 'BofA Pays for Soured Loans,' with the subheading 'Lender Gives Nearly $3 Billion to Fannie, Freddie Over Countrywide Mortgages.'

So that makes the running tab for Countrywide $9B, when you include the $18/share purchase of Countrywide equity in August of 2007 for a total of about $2B. By the way, when Lewis made the January purchase, Countrywide's stock was less than half its August price, or $8/share.

According to the Journal article, a Sanford Bernstein analyst assesses the additional put back risk to BofA at as much as $4B.

I'd love to see Ken Lewis questioned now by someone with good data on the August, 2007 and January, 2008 final Countrywide equity purchases. With the $6B paid for Countrywide by three years ago, $1B of which had already vanished as loss between mid-2007 and early-2008, this week's $3B, and up to $4B more in givebacks over the next two years to private investors, Lewis' Countrywide deal might ultimately cost BofA over double it's 'final' price three years ago.

It's difficult to believe that would still make the Countrywide acquisition by BofA the profitable masterstroke Lewis contended it was.

Oddly, the Journal article didn't seem to mention any of this. But a glance at the nearby price chart for BofA and the S&P500 Index shows how far the former's stock price has collapsed since Lewis closed the Countrywide deal.

While the S&P has lost a few percentage points of value, BofA has dropped by more than 60%!

What do you suppose was BofA's manner of assessing risks of the Countrywide portfolio and its upstreamed mortgages? Could they really have assumed no or minimal losses, when Countrywide was collapsing due to a general residential real estate value meltdown?

Perhaps the Countrywide deal will serve commercial bankers as a cautionary tale of buying badly-damaged financial institutions with far-flung liabilities in the form of loan sales.