A huge mistake is weighing on Bank of America.
The bank’s acquisition of mortgage lender Countrywide in 2008 has cost BofA more than $40 billion, the Wall Street Journal reports. The merger turned BofA into a big player in the mortgage market right before the housing bubble burst and since the bank has suffered massive real estate losses and paid out huge sums in legal fees and settlements with state and federal agencies.
To put the sum in perspective, JPMorgan Chase’s infamous trading loss could amount to $9 billion – less than one-fourth of the Countrywide losses.
“It is the worst deal in the history of American finance,” Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte told the WSJ. “Hands down.”
Plath’s not the first to pan the disastrous deal. Almost immediately after then-CEO Ken Lewis agreed to acquire Countrywide in 2008, experts wondered if the decision to double down on the housing market just as it was in the midst of collapsing was too big of a risk.
Since, the decision has proven to be costly. BofA’s mortgage business lost $8.9 billion and $3.8 billion in 2010 and 2009 respectively, according to a separate WSJ report. Just some of the settlements BofA has had to payout as a result of Countrywide: $600 million to pension investors claiming shoddy Countrywide mortgage securities lost them money, $108 million to the SEC over allegations Countrywide charged excessive fees to homeowners facing foreclosure.