Although the rumor was running rampant throughout the industry last week, it appears as though Bank of America Corp. is not interested in acquiring or embarking on a joint venture with mortgage giant Countrywide Financial Corp. Analysts noted last week that it's highly unlikely BofA would consider buying a mortgage lender that seeks to finance itself through bank deposits. At most, they said, the bank might consider something along the lines of outsourcing its mortgage processing to Countrywide.
Both companies intend to increase their capital markets presence in Europe and Asia this year, and, of interest to structured finance professionals, Countrywide is still planning on managing CDOs, setting up a structured finance fund and trading derivatives, Angelo Mozilo, chief executive of the Calabasas, Calif.-based mega-lender said Wednesday at Citigroup's financial services conference in New York. Countrywide also wants to increase its share of third-party MBS and ABS underwriting. And, as Countrywide is planning a continued focus on its Asian offices, BofA is thinking of investing $300 million to $400 million for capital markets development in Europe and Asia "over the next several years," BofA's Chief Executive Kenneth Lewis said at the same conference.
Some speculated Countrywide, or its subprime origination platform, may in fact be acquired, but more likely by an investment bank. BofA, the country's largest bank, is restricted by federal law to a 10% limit on holding U.S. bank deposits, a situation that Lewis said is pushing the bank to look outside the U.S. for growth.
While Mozilo provided an ambiguous answer to investors that tap danced around the possibility of a merger or joint venture last week, BofA's Lewis was quite blunt. "We have said unequivocally that our strategy is one of organic growth, and one of selling directly to consumers," Lewis said. "We like the product, but we don't like the business."
Later on, Lewis added that the bank - which exited the subprime lending business in 2001 - would not be getting into subprime as an originator during his lifetime. "I have said before that we might be in the subprime lending business, but we have so much work to do in the prime business and direct-to-customer that a foray into that would likely be in the next generation of leadership - and I'm not that old."
Countrywide originated some $98.6 billion in prime mortgages last year and about $9 billion of subprime mortgages. Mozilo said simply that Countrywide, whose theme for 2007 is "velocity," would do what was best for shareholders. He also mentioned, "Growth for the sake of growth is not our objective, whether through organic growth or through opportunistic executions." Also worth noting, Mozilo said he expects the subprime lending industry to shake out to three or four dominant players, similar to the Big Three auto lenders.
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