Bank of America Corp.’s $3 billion takeover of Countrywide Financial Corp. will be financed by 138 million tax-paying Americans, Bloomberg reports.
Bank of America, led by Chief Executive Officer Kenneth Lewis, can use tax write-offs to pay for Countrywide, the country’s biggest mortgage lender, said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who now runs his own accounting firm. Taxpayers may pick up about $5 billion of Countrywide’s losses over 20 years, he said. Countrywide shareholders vote on the sale today.
“Ken Lewis got a break,” Willens said. “What these losses do is reduce the effective cost of the deal so the headline price isn’t really what they’re paying. It’s entirely possible that the entire equity purchase price could be financed by tax savings.”
The tax benefit may explain why Lewis continues to back the purchase even as analyst Paul Miller of Friedman, Billings, Ramsey Group Inc. said he should “walk away.” Miller, the top-ranked analyst in Bloomberg’s latest survey of stock-pickers, estimates Countrywide will lose as much as $33 billion on bad home loans. Lewis said this month Bank of America, the biggest U.S. consumer bank, will come out ahead even if home prices drop by more than 25 percent in the next two years.
“Sometimes that’s a reason why companies that don’t look like they’re worth much get acquired,” said Bob McIntyre, director of the Washington-based Citizens for Tax Justice. “It’s to keep their tax assets from being wasted.”
Five-Year Limit
Bank of America spokesman Scott Silvestri declined to comment and calls to Countrywide spokeswoman Ginny Zoraster weren’t immediately returned. Calabasas, California-based Countrywide will give Bank of America, run since 2001 by the 61-year-old Lewis, about a quarter of the U.S. mortgage market.
