UCLA’s Gabriel on the B of A-Countrywide Deal

With the inking of a single deal late last week, Bank of America became the nation’s leading mortgage lender and loan servicer when it bought the troubled Countrywide Finance Corp. for $4 billion in stock. But what is Bank of America getting for that princely sum?This morning, CPN spoke about the acquisition, and its wider implications, with Stuart Gabriel, UCLA professor of finance and holder of the Arden Realty Chair, and director of the Richard S. Ziman Center for Real Estate.Until 2007, Gabriel (pictured) held the Lusk Chair at the University of Southern California and directed the Lusk Center for Real Estate. Prior to joining the USC faculty, he was a member of the economics staff of the Federal Reserve Board in Washington, DC, and more recently has been a visiting scholar at the Federal Reserve Bank of San Francisco.CPN : What does Bank of America get out of this deal?Gabriel: Countrywide has significant expertise and depth in the origination, servicing and securitization of mortgages, all of which will benefit Bank of America. They’re buying far-reaching infrastructureand expertise in the primary and secondary mortgage markets, and well as the ability to cross-sell their myriad products at a relatively inexpensive price.CPN : Will these benefits outweigh the current problems that Countrywide is experiencing?Gabriel:  Yes. Bank of America has offered a price to Countrywide that reflects whatever discounting of revenues and increases in expenses associated with those short-term problems. The bank has been quite thorough in evaluating all of those issues, which have been reflected in the pricing.It will be a challenge to integrate their two existing platforms, and there may be some redundancy. In particular, there might be some redundancy in retail branches that Bank of America will have to work through.