COUNTRYWIDE LOSSES NEXT FOR BOFA

http://www.nypost.com/seven/02082009/bus....
So far Merrill Lynch has been a well-publicized nightmare merger for Bank of America's Ken Lewis.However, it's the CEO Lewis' slapdash acquisition of mortgage giant Countrywide Financial for $4.1 billion that could haunt the financial giant in the future.Charlotte, N.C.-based BofA may wrack up cumulative mortgage losses stemming from its Countrywide purchase of as much as $33 billion, according to financial analyst Paul Miller at Friedman, Billings, Ramsey & Co.That's $10 billion more than the roughly $23 billion BofA set aside to reserve against future losses in its entire mortgage portfolio. BofA agreed to buy Countrywide two years ago last month for $4.1 billion after a $2 billion cash injection months prior didn't help the subprime-laden lender stay afloat - or independent.The projected losses BofA may face also are double the whopping $15 billion fourth-quarter loss that Merrill Lynch's CEO John Thain laid at Lewis' feet.Across Countrywide's entire loan book, FBR estimates that losses in home-equity loans could hit $17 billion, losses in option-adjustable rate mortgages may touch $11.4 billion and losses in hybrid first-lien loans could reach $5 billion."[Countrywide] was a horrible deal," Miller told The Post.Many speculate those future losses that BofA will face by virtue of Countrywide and its other exposures to consumer debt - like its massive credit-card operation - have already been factored into its performance by investors.Perhaps.However, Miller believes that many banks have to be sanguine about their views on such things as the unemployment rate, which hit 7.6 percent last week."A lot of the executives I speak to are projecting unemployment of 8 or 9 percent. But when I ask what happens [to losses on their consumer loan portfolios] if we see double digit [unemployment] they go blank," Millers notes.In a CNBC interview on Friday Lewis said BofA's maintains that the unemployment rate could hit 8 percent or 8.5 percent but also allowed for the possibility that it could reach 9 percent.Ballooning jobless claims over the next several quarters will only place more pressure on BofA's portfolio of mortgages as well as its exposures to credit cards and other consumer debt.And for BofA exposures to commercial real estate loans may also prove a thorn in its side through its purchase of LaSalle Bank in October 2007 from ABN-AMRO.Indeed, on Friday credit-rating agency Fitch lowered BofA's credit outlook on concerns about its home-equity loans, credit-card portfolio and commercial loan book, despite Uncle Sam agreeing to backstop $118 billion in assets and offering up a $20 billion lifeline.To be sure, BofA's Countrywide investment could be a huge success, especially given the fire sale price the financial giant paid to acquire the nation's largest mortgage originator.In his CNBC interview, Lewis noted low-interest rates and a steady consumer push to re-fi mortgages has been a huge positive for BofA's Countrywide purchase so far."Countrywide is on fire at the moment because of re-fis and the lower rates. And so I'm hopeful that we'll prove that was a very good [acquisition] as well," Lewis said.At this point, Wall Street's fretting surrounding BofA is based on the view that the institution will become overwhelmed by bad consumer debt and need to return hat-in-hand to the government.Lewis attempted to put those fears to rest during his CNBC interview adding that BofA will not need another infusion from Troubled Asset Relief Program and, in fact, hopes to pay back its government rescue package "within three years."Investor concerns on Friday dragged BofA down to a multiyear low of $3.77 in Friday morning trading.However, the financial giant's stock gained on Lewis' assurances that he wouldn't need to go back to the government well and on word that the Obama Administration was readying a huge mortgage-modification program.BofA's shares ended up 26.6 percent to close at $6.13 on Friday.Lewis has made BofA into a powerhouse since he took over for Hugh McColl eight years ago.Since then the CEO has been on a merger rampage, scooping up banks such as US Trust, mortgage companies and credit-card outfit MBNA as his competitors including cross-town rival Wachovia Bank withered (Wachovia was acquired by San Francisco-based Wells Fargo).Last year, his maneuvering earned him kudos as Banker of the Year by trade publication American Banker but the twin collapses of Merrill Lynch and the potential implosion of Countrywide has turned him into a goat.