Craig Focardi, research area director for the TowerGroup Consumer Lending, Retail Banking, and Delivery Channels practices, has assembled the TowerGroup research teamâs initial thoughts on the implications of this acquisition for the financial services industry:
â¢ This merger would create by far the largest mortgage lender and servicer in the United States â with approximately 12.8 million customers and 23 percent market share
â¢ BofA would gain the opportunity to cross-sell bank products to an estimated 9 million Countrywide mortgage customers
â¢ BofA would gain Countrywideâs retail bank (thrift deposit) customers
â¢ BofA would acquire leading â while proprietary â loan origination and loan servicing platforms
â¢ Managing through a potential culture clash between Countrywideâs aggressive mortgage operations and Bank of Americaâs professional retail banking environment may be a significant challenge
â¢ With the prospect of this merger, BofA will test regulators anxiety levels associated with the 10 percent deposit rule by exploiting a little known, never used loophole
â¢ BofAâs balance sheet status and capitalization requirement will come under further scrutiny, which started when it acquired LaSalle bank
â¢ Identification and elimination of redundant lending and banking systems is complex, and will be a multi-year process
With a recession looming, capital markets becoming more nervous, an overspent consumer, rising energy rates and a collapsing real estate market, this acquisition is a very bold move by the BofA board. In fact, the timing of this acquisition seems on the surface little more than a bailout strategy to protect its earlier $2 billion investment in Countrywide.
Foreign bank merger activity in the U.S. has been ominously silent to date, even though the weak dollar and the strong capital position of many foreign banks gives them the ability to acquire large U.S. banks. Acquisitions of U.S. banks have historically been smaller in scale, focusing on regional banks. Merger discussions between Chase and Washington Mutual may indicate both a preemptive strike by U.S. banks against foreign acquisition â but may also reflect concern by foreign banks about the weakening housing market, ongoing increases in loan defaults and weak near-term growth prospects for banks.