Their Multi-Billion Garage Sale Makes It Look Like They Are

Steve Dibert, MFI-Miami

The cool thing about owning a company like MFI-Miami is that I get to chat on and off the record with a lot of media types with the inside scoop on what is going on in the financial world.  These conversations tend to link a lot of missing pieces together like a jigsaw puzzle of what is going on in the finance world. The latest puzzle revealed big problems at Bank of America after it was all put together.

Over the past month, I have noticed the attitude at the executive offices of Barbara DeSoer go from jovial to downright hostile like when one executive told me several weeks ago before abruptly hanging up on me, “We are very well aware of who you are Mr. Dibert, we are the largest bank in the U.S. and we will not be bullied!”

My staff would tell me about how they would get four different answers from four different people at her office at Bank of America or calls to their Texas office would “mysteriously” get disconnected.  Initially, I blew it off because I figured someone sent out a memo about MFI-Miami.  Yes, they send them out memos about companies like MFI-Miami.  Matter of fact, Wells Fargo apparently sent one out last year calling me a Communist who is hell bent on destroying the American way of life but that’s another story.

Then clients, attorneys, bloggers and reporters began calling me asking why there is so much confusion at Bank of America’s servicing division and why Bank of America has been refusing to commit to loan modifications.  These bloggers and journalists observed that Bank of America’s refusal to modify mortgages would contradict their public statements bragging about how they have modified 600,000 plus loans.   Those numbers may have been exaggerated due to Bank of America actively soliciting Angelo Mozilo’s old “Friends of Angelo” list. Of the nearly 300 Bank of America homeowners, MFI-Miami has worked with who are attempting to get modifications, I can report only 1 has received a permanent modification without going into litigation.  The rest have been put into never ending “trial periods” or are in mortgage purgatory because of litigation.

Several other MFI-Miami clients facing foreclosure began telling me that their twice daily threatening calls from Bank of America had abruptly stopped.   Loans held by subsidiaries of Bank of America that MFI-Miami were investigating would abruptly be transferred to Fannie Mae or Freddie Mac without being recorded in the counties the properties were located.

Three lessons I learned from working in politics that can be applied to the finance world, where there is smoke, there is fire.  There is no such thing as a coincidence and bean counters are like the old Soviet military commanders, they don’t wipe their ass without planning it in advance.

It was obvious senior executives at Bank of America were up to something but then I got a strange phone call from one of my inside sources at Bank of America.  What they told me was so unsettling that I had to retreat to the shores of Lake Huron in Grand Bend, Canada to analyze the information.

My contact told me that Bank of America is selling off their servicing rights on loans they serviced for other investment houses and they are selling off their trustee rights they hold in their name, Countrywide’s name and LaSalle Bank’s name to Deutsche Bank.  What they can’t sell to other banks they are selling to Fannie Mae and Freddie Mac.  This would explain why my office has seen an increase of Bank of America owned loans transferred to GSEs like Fannie Mae and Freddie Mac. This increase in transfers to the GSEs would also explain why Fannie and Freddie have asked congress for more corporate welfare from the TARP fund.

On the surface this looks like Bank of America is having a liquidity problem but then buried deep in the Asian edition of the Wall Street Journal last week was an article that the Blackstone Group was taking over Bank of America’s Asian Real Estate Fund.  This would indicate this much more than Bank of America having a liquidity problem.  This would indicate that Bank of America has turned into the SS Titanic.  The only thing lacking are the musicians playing their parting music on the bow of the ship.

My source was even bold enough to say that executives are planning on Bank of America being out of business by the end of the year.  They are waiting for someone to buy their branch network before making the news of their pending demise public.

After witnessing the fall of Indy Mac Bank and after hearing U.S. Treasury Secretary Timothy Geithner repeatedly say when firms get into trouble, “We will dismember them.” It is apparent that Bank of America management felt it would be a wise move for Bank of America to conduct this controlled multi-billion dollar garage sale themselves privately and quietly rather than have Treasury do it publicly exposing executives to embarrassment, public scrutiny and quite possibly criminal investigations.

In the era of creative accounting, they could also use the cash raised from the massive garage sale to mask any losses and thus keep their shareholders and deposit holders happy and quiet.

But what Bank of America executives feared most were Depression Era bank runs.  After seeing riots in Greece and having protestors showing up at the homes of their executives, Bank of America’s priority was and is to keep this out of the media as much as possible.

Brian Moynihan owes a huge debt of gratitude to Tony Hayworth and the safety inspectors at British Petroleum because while the mainstream media was distracted by the Gulf oil spill, Bank of America could go about liquidating their assets and no one would be the wiser.

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