The Real Deal Miami

BofA might need to forfeit Merrill Lynch, Countrywide following mortgage losses

August 22, 2011 06:41PM

Some analysts believe that the only way for Bank of America to survive
its crisis is to give up on being a large Wall Street and
international bank and return its focus to deposit-taking and lending,
Crain’s reported. Nancy Bush, a banking analyst of research at NAB, said
that a large challenge for BofA is that in its national
role, “the nation’s problems are its problems.” BofA CEO Brian
Moynihan has said he is not interested in breaking up the bank, but
considering the $9 billion of losses it suffered in the second quarter,
its worst quarter to date, there may not be an alternative. If mortgage losses reach their high
estimates, BofA may have to give up its 10 percent stake in China
Construction Bank, valued at $21 billion.

It could also end up
spinning off all or part of its stake in Merrill Lynch, which could
bring in $30 billion. While BofA might keep Merrill’s retail
brokerage, Bush suggests that BofA might rid itself of Merrill’s
investment banking operation.

Others speculate that Moynihan put the
Countrywide mortgage division, which BofA bought in 2008, into
bankruptcy. But there may not be any way for it to do so, since the
bank revealed four months after the deal that it had taken control of
the mortgage originator’s assets and liabilities. “We see no plausible
way for Bank of America to disclaim Countrywide,” Adam Cohen, an
analyst at debt research firm Covenant Review, wrote in a recent
report. [Crain’s]