I'm still trying to figure out how this will benefit Bank of America. The price wouldn't be so bad if not for the fact that Countrywide will ultimately have liabilities far in excess of $4 billion. This is throwing good money after bad. I'm surprised B of A didn't just let Countrywide go bankrupt and then feed on the carcass, which they already have rights to do due to their previous $2 billion investment.

Jane,

perhaps the executives and consultants at B of A have more information than you. Of course they do not have the crystal ball you have. Which storefront do you work outta when you read palms?
They certainly have more experience. Now companies make grand mistakes every day. Perhaps this is one of them.

However, I would bet they will do ok with this purchase. What does your crystal ball say?

Jane–

B of A is buying the losses. It will save them about half a billion dollars in taxes over the next several years. These sorts of deals have been fairly common since the late 80s. With Countrywide, the problem was finding someone with profits so large that they could offset the losses.

OH OH PLEASE open more BOA branches! I am not sure there is one on every corner just yet!!! (I am joking)

The Feds gave them no choice and will return the favor later. Forcing the healthy banks to takeover the financial institutions about to fail was a common practice during the S&L crisis. The Feds do not give you a choice…

Joe,

It's too bad you lack familiarity with the Internal Revenue Code as it affects tax loss carryovers in corporate reorganizations.

Anyone who has that knowledge quickly concludes that your argument is foolish. Perhaps I'm misreading your brief statement, and you're really an expert on section 368 and intimately familiar with the structure of this deal - in which case you'll enlighten us as to the technical aspects of your argument.

Most of us foolishly thought that the Revenue Reconciliation Act of 1990 greatly restricted trading in tax benefits in corporate reorgs. Thanks for informing us neophytes that "these sorts of deals" have become more, rather than less common as a result of that act.

In the meantime, Jane, Pete and huh are probably marveling at your superior insight. And others are speculating that you're simply a blowhard.

Story from CNN.

I have no idea of the validity of this story and I am far from an expert on tax law.

irishpirate,

I'd seen the article - on a different site, as I recall - before ocmmenting. Note that the example of a previous BofA deal was in 1988 - before the tax law changes.

The Walls Street Journal and New York Times made no reference to tax benefits in their coverage of the deal.

It's been a while since I spent my days immersed in the arcana of corporate reorganizations and perhaps I'm missing something here. Based on what I do know, I'm deeply skeptical that these tax benefits, as described, exist in this deal.

Let's await Joe's explaining the techical details for us, with cites to the relevant provisions of the merger agreement and the Internal Revenue Code.

Well this expert the story quotes seems to be unsure of exactly how this will play out. Good work for high priced law firms I imagine. I knew a guy who made tens of millions of dollars as an attorney fighting the IRS for a certain family that is notorious for not paying taxes. Very creative man. Before he died he was on his 3rd or 4th trophy wife.

I personally found the PaulJ comment more "interesting". I guess he has inner knowledge of the workings of the federal banking regulatory agencies at the highest levels and how this directly played into this deal. Then again, I'm just a pirate, not a Europhile who knows nearly everything.

As I stated earlier B of A must have some reason for feeling that this is a good deal for them. The reasons are beyond my experience or knowledge.

irishpirate,

What dismays me when reading our comments is the sheer level of pomposity from people who are so ill-grounded in the complexities of our financial system.

Want to take bets on whether paulj even knows who "the feds" are here, i;e. which division of the federal government would be the relevant regulatory body with the authority to do what he describes? My bet: clueless.

Irishpirate, since you seem so sure of yourself, why don't you tell us why it makes sense for B of A to buy Countrywide. For all that bloviating, surely you have some answers.

Pete,

I said I don't have the answers. I also said that B of A must have a belief and solid reasons to believe that this purchase is in their best interest. Unless B of A is purposefully purchasing Countrywide because they somehow believe losing money is a good thing.

I suspect the people making this decision know a wee bit more about it than anyone here. One thing I do know though is that if "Pete" told me it was a bright and sunny day I would walk up to my roof and make sure it is. Then if it was I would double check by calling the National Weather Service. I am sure that there are times when you are right, Pete. Even a broken clock is right twice a day. I just don't recall any.

Joe,

people on this site and on many others state opinions as fact. They take pure supposition and turn it into Newton's law. Many times they pull something right out of their lower orifice and state it in such a way that makes me think of Chuck Heston coming down the mountain in "The Ten Commandments". I of course play the Edward G. Robinson role. Now where is my Golden Calf and the wanton women to carry the calf for me?

1.) I'm not a tax lawyer. In the first half of the decade, I played a small part in several transactions involving a now-defunct (or nearly defunct–not sure if the run-off has run its course completely) Illinois-based insurer in which several loss-producing subs were acquired by other insurers for write-off purposes. There may have been McCarran-Ferguson insurance peculiarities about these deals; if so, this experience would not be applicable here.

2.) That said, my (non-tax-lawyer) understanding is that IRC 382 allows a portion of historic losses to be carried forward by the acquirer for a set period of time. When you're talking about the size that the Countrywide losses are believed to be, even at a low rate (I believe that it is around 5%), this adds up quickly.