Bank of America (NYSE: BAC) invested $2 billion into Countrywide Financial (NYSE: CFC) when the mortgage lender hit a rough patch due to subprime mortgage defaults. That stake is now worth only about $1 billion due to a drop in Countrywide's share price. And CFC may be in more trouble. No one knows how bad its balance sheet looks or if more defaults could lead to a crisis at the company.
Bank of America is currently adopting the attitude that it does not have any interest in putting up a greater investment or getting involved with helping to manage Countrywide. According to The Wall Street Journal, "People familiar with the thinking in its (BAC) executive suite say the company is in wait-and-see mode."
As part of its investment, Bank of America has right of first refusal to buy Countrywide if another company makes a bid. And BAC could make a decision to simply buy Countrywide if it thinks that the company's mortgage problems are manageable. CFC has a market cap of only $5 billion. Earlier in the year, that number was closer to $45 billion.
Bank of America already has a large mortgage business, so it knows the field well. If it feels that Countrywide's worst problems are behind it, the company could be bought on the cheap.
Douglas A. McIntyre is an editor at 247wallst.com.
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