Bank Of America Buys Countrywide To Save On Taxes
Bank of America (BAC) recently announced it would be buying Countrywide (CFC) for $4.1 Billion putting an end to rumors that CFC was considering bankrupcy.
Apart from gaining access to CFC’s technology, banking business and god-only knows what it has thats of any worth, Bank of America will also inherit it’s losses. According to tax guru Robert Willens, the tax break could total about $500 Billion dollars over the first five years and may even be worth considerably more from the sixth year, depending on how big Countrywide’s losses are when Bank of America formally acquires it.
This isn’t the first time this has happened. In 1988, Bank of America purchased the failed FirstRepublic Bank of Dallas in auction. Using a complex tax strategy allowed Bank of America to save $1 Billion in taxes.
Willens estimates that Bank of America will be able to deduct $270 million of Countrywide’s losses annually for the first five years it owns the firm, which would total $1.35 Billion! If Countrywide’s losses turn out to bigger, Bank of America gets to write off even more of its profits.
CFC’s CEO Mazillo will get a going-away present of $115 million, including company jet time and country club fees. Its not enough that he had been pumping the stock on CNBC for the past 18 months while simultaneously dumping $100 million worth of stock. He should be investigated by the SEC for painting a rosy picture of his company’s business when he must have known the stock was going to drop like a rock. If not illegal, it was definitely unethical.
On the other hand, Bank of America which currently owns 9.7% of US deposits will be breaking the law when it acquires CFC. Countrywide’s Bank has savings deposits which will push Bank of America over the federally regulated limit preventing individual banks from possessing more than 10% of all deposits. I guess they’ll just have to give the depositors some of their money back! It’ll be like a reverse bank-run.
If you found this post helpful, consider donating to my coffee fund!- $10 Billion Dollar Stock Buyback BHP Biliton (BHP) just announced a $10 Billion Dollar stock buyback over the next 18 months!!! Thats on top of the $3 Billion previously announced. About 4 months ago I bought BBL. BHP also trades as BBL and BBL trades at a slight discount to BHP, making it cheaper to......
- Now What - Is The US Economy Doomed? Well the $700 billion bailout plan was defeated. Wall Street didn't like it and the market dropped a jaw-dropping 777 points. Was the bailout that vital to the health of the US economy? Jim Rogers didn't think so. Here's a news report from the 25th of September ago: Treasury Secretary......
- Bank of America Announces Free Online Trading According to Bloomberg.com"Bank of America Corp., seeking to attract new clients, offered free online stock trades to customers with accounts of at least $25,000, sending shares of discount brokers lower.The second-largest U.S. bank said customers in New York, Boston and other cities in the northeast U.S. will get 30 free......
Related Websites
- Is Going Into Debt Ever Worth It? Debt has become such a dirty word these days, and in many cases, there is good reason for that. Americans are saddled with unheard of amounts of debt and the problem is not just going to go away. In some cases, debt is absolutely necessary, while in others, it is......
- Another AIG update As the world's largest Aircraft Lessor, ILFC is still in play with a mountain of debt which was $17 billion even 12 months ago. ILFC and General Electric Co.’s GE Commercial Aviation Services, the world’s largest aircraft-leasing firms, are the biggest customers for aircraft makers including Airbus SAS and Boeing......
- Weakon 316: The Time Value Of Money The time value of money is a simple concept. A dollar today is worth more than a dollar tomorrow. A dollar today is worth more than a dollar in a year. But this plain and simple concept is the foundation of all finance. It doesn’t matter if you’re taking out......
[All content is copyright of Living Off Dividends & Passive Income]







January 15th, 2008 at 12:10 pm
Interesting. I guess they will sell the excess deposits/accounts to other banks.
January 16th, 2008 at 10:05 am
Interesting about the taxes. I like BAC right now as an investor. What do you think? Even after the dividend getting slashed, it’s still a good yield and with the market down this may be the perfect time to get in.
January 17th, 2008 at 9:09 am
Wasn’t it citi that slashed its dividend?
January 17th, 2008 at 11:21 am
yes it was Citi that cut its dividend after promising it wouldn’t (and borrowing Billions at junk-bond rates of 11.5% to pay it).
However, there’s a chance BAC might cut its dividend. Not for any reason, other than its gotten high!!! [ok, thats just speculation on my part].