Bad Paper

Analyst Paul Miller at Friedman Billings Ramsey recommended that Bank of America walk away from its deal to acquire Countrywide Financial Corp. Miller projects that writedowns could reach $11 billion on Countrywide’s portfolio of option ARMs and $5 billion on hybrid ARMs and other loans. Miller wrote that “The issue of fair value marks was a significant part of the reason that National City failed to find an acquirer. If fair value marks sufficiently exceed BAC’s projections at the time of its due diligence, we believe the deal price for the purchase of CFC could be renegotiated lower, or BAC could (and should) decide to walk away.”