B of A needs to shake Countrywide
The tainted mortgage company that Bank of America acquired is keeping its shares from rallying.
What he goes on to say, though, rankles me.
He wants to know why I don't appreciate Countrywide that much, why I'm always negative on it. I tell him that it's tainted, that it has an unfathomable number of home equity loans and a huge number of loans that need to be reworked. I point out that reworking is expensive and is a total drag on earnings.
He talks to me about "reach," and I come back and say: "Reach? Bank of America has all the reach it needs without Countrywide." You know what I should have said? I should have said: "I dislike Countrywide so much, I wish B of A would put all of those loans into some sort of 'bad bank,' some equity stub that's a bet on a comeback of home prices someday. That would remove the taint to the core bank."
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We all know that Bank of America's buy of Countrywide may have been among the dumbest, stupidest acquisitions of all time. I could argue that Countrywide would have been bankrupt, a ward of the state, if B of A had simply taken a pass on it. Bank of America severely overpaid for Merrill Lynch, too, but that's a terrific asset with a great brand. No one in this country thinks Countrywide is a good brand.
So why not get rid of the dregs of Countrywide, package them all in a Countrywide bank? Rename whatever is still Countrywide as Bank of America and get rid of the darned thing.
It can be like Citigroup Holdings, where you have loans shifted into an entity that is basically not part of Citigroup and it can bleed off. I would go one step further and give guys like the elevator guy, or other optimists out there, a chance for the most levered option to housing, the one that owns equity in homes that could be wiped out if housing stays low but could soar if housing gets better.
Good bank, bad bank.
That's the ticket for Bank of America to rally to $20. Now, where's that guy in the elevator? Maybe he can get it to work.
At the time of publication, Cramer held shares of Bank of America.
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