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Will BAC's Moynihan Pull The CFC Bankruptcy Bazooka?

Tyler Durden's picture


Just as we had suspected, Bloomberg is now reporting that BofA has gone all M.A.D. on the hand-that-feeds by leaving the possibility of bankruptcy for its trade-of-the-decade, accretive-within-a-year, coulda-been-a-contender business unit Countrywide Financial Corp. The entity remains a separate legal entity under the BAC capital structure with $3.8bn of direct Senior Unsecured and Senior Subordinated debt and an aggregate exposure around $6.5bn from all the sub-entities under the CFC entity. Of course, threatening the use of this legal route will not be a tidy process and will likely bring in doubt the rest of BAC's capital structure to a greater or lesser degree and is unlikely to bode well for BAC's capital market access and trading partners - but perhaps that won't be a problem once the FDIC's living wills are in place.

June 2012 sees around $2.3bn of the CFC entity debt due:

Chart: Bloomberg


From the Bloomberg story:

The option of seeking court protection exists because the Charlotte, North Carolina-based bank maintained a separate legal identity for the subprime lender after the 2008 acquisition, said the people, who declined to be identified because the plans are private. A filing isn’t imminent and executives recognize the danger that it could backfire by casting doubt on the financial strength of the largest U.S. bank, the people said.

The threat of a Countrywide bankruptcy is a “nuclear” option that Chief Executive Officer Brian T. Moynihan could use as leverage against plaintiffs seeking refunds on bad mortgages, said analyst Mike Mayo of Credit Agricole Securities USA. Moynihan has booked at least $30 billion of costs for faulty home loans, most sold by Countrywide during the housing boom, and analysts estimate the total could double in coming years.

“If the losses become so great, how can Bank of America at least not discuss internally the relative tradeoff of a Countrywide bankruptcy?” Mayo, who has an “underperform” rating on the bank, said in an interview. “And if you pull out the bazooka, you’d better be prepared to use it.”


and What Could Go Wrong?

Pitfalls include the possibility that a bankruptcy filing would cast doubt on the entire company’s willingness to support its other subsidiaries and damage Bank of America’s standing in the credit markets or with rating firms, hurting its ability to borrow, according to analysts.


“It’s not some sort of magic elixir that makes it all just go away,” Westbrook said. “I suspect that’s one reason they haven’t done it yet.”


and the fallout

Bankruptcy would be a “last-ditch option,” and possibly a costly one, because counterparties might become hesitant to buy the parent company’s debt or open trading lines with its Merrill Lynch unit, David Hendler, a CreditSights Inc. analyst, said in a Sept. 8 note. Credit-rating firms could downgrade Bank of America subsidiaries, which benefit from the implicit support of their corporate parent, he said. That would drive up the bank’s cost of borrowing.


“Most counterparties I speak to think this would be a very difficult option for Bank of America and unlikely to be sanctioned by regulators,” said Manal Mehta, a partner at Branch Hill Capital, a San Francisco-based hedge fund that has bet against the lender’s stock in the past. “The whole reason they would pursue the nuclear option of a Countrywide bankruptcy would be to put this behind them, but all you would be doing is opening up a Pandora’s box.”


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Fri, 09/16/2011 - 02:03 | 1676242 EscapeKey
EscapeKey's picture

Well what the bloody hell did they expect? If they give the banks a magic joker in their deck, did they expect them not to use it? There's no honour amongst thieves.

TBTF means too big to exist. But as long as the politicians are easily bribed, they will happily look the other way as the banks keep raping and pillaging.

Fri, 09/16/2011 - 02:07 | 1676251 phyuckyiu
phyuckyiu's picture

If everyone uses the Samson Option at the same time, what happens?

Fri, 09/16/2011 - 06:57 | 1676420 spiral_eyes
spiral_eyes's picture

They won't. The only language the establishment understand is print print borrow print print. 

It will all end when this bullshit leads to a real breakdown in global trade/ supply chains. 

Fri, 09/16/2011 - 10:09 | 1676858 unununium
unununium's picture

From what dark place does this drivel issue forth?

Suddenly, we are supposed to believe that Countrywide is bankruptcy-remote?

If that were the case, it would have been jettisoned LONG AGO.


Fri, 09/16/2011 - 02:25 | 1676271 oobrien
oobrien's picture

Wasn't WikiLeaks supposed to expose BOA back in February?

What happened to that?

Fri, 09/16/2011 - 03:01 | 1676302 Michael
Michael's picture

And what about all the Mid-prime and Prime mortgages recasting and resetting that's going to go on, at least till mid 2012?

Why aren't we hearing about those loses?  They're almost as big as the subprime loses.

Don't make me go McMansion on you guys.

Countrywide just brings out the worst in me since my housing bubble blog days.


Fri, 09/16/2011 - 03:21 | 1676311 Michael
Michael's picture


Car registrations in Ireland down 36%. Down 35% the month before.

That's the whimpering Irish for you.

Fri, 09/16/2011 - 03:34 | 1676318 Raymond Reason
Raymond Reason's picture

No shit, where's all the fighting?

Fri, 09/16/2011 - 03:47 | 1676328 Michael
Michael's picture

I wonder if we could start an Amish Lite sect where we accept modern technology to a certain extent?

Absolutely no MSM TV though.

Fri, 09/16/2011 - 05:22 | 1676373 Michael
Michael's picture

I believe the problem started when we transfered ownership of Wascington D.C. from the people, to ownershitp of DC unto themselves on the inside in 1871.

UNITED STATES is a Corporation - There are Two Constitutions - Sovereignty

Fri, 09/16/2011 - 05:46 | 1676384 Careless Whisper
Careless Whisper's picture

B of A is smarter than we think.

<------ Junk me. I don't care. Bankstas gonna get the last laugh. Admit it.

Fri, 09/16/2011 - 08:26 | 1676523 iinthesky
iinthesky's picture

You're right. People just don't understand what this means and how sinister this is. The significance of a corporation masquerading as government is lost on 99% of everyone I speak to.

But it does't stop there woth the federal corporation. Every STATE OF, COUNTY OF, CITY OF, TOWN OF, VILLAGE OF, and PARISH OF is cotporate and since corporations are legal fiction juristic persons, the only way they can deal with you is in a corporate capacity and therefore YOU must be turned into a legal fiction as well. The creature cannot govern, regulate, tax, or imprison its creator. YOU in the eyes of government are a corporate franchise and everything they do for you binds you to that subject status like the rings of Sauron.

Fri, 09/16/2011 - 11:05 | 1677081 Tijuana Donkey Show
Tijuana Donkey Show's picture

They are called Mennonites, and they have a nice angle. (Bad outfits though) The amish are a bit goofy, they do business with corporate America, and use GMO crops. Just no modern gadgets.

Fri, 09/16/2011 - 04:19 | 1676343 blunderdog
blunderdog's picture

Holy fuck, oob.  You posted something that wasn't just complete and total shit-spam for your site.

(Do you understand how that "nofollow" thing works?)

Fri, 09/16/2011 - 07:04 | 1676421 OOONONO
OOONONO's picture

Speaking of "bloody hell", I mean ...  we are talking about Cunt Tree Wide - the name says it all.   This way be dragons! 

Fri, 09/16/2011 - 07:29 | 1676435 Tater Salad
Tater Salad's picture

I love it!  Every Tom, Dick and Harry walking away from mortgages with zero recourse against them, If I were Moynihan I'd kick CFC to the curb too.

Fri, 09/16/2011 - 02:03 | 1676243 Id fight Gandhi
Id fight Gandhi's picture

Another late night? Thanks for all the work u do

Fri, 09/16/2011 - 03:21 | 1676312 oobrien
oobrien's picture

In all fucking seriousness...

ZH is the best website in the history of humanity.

No shit.

Fri, 09/16/2011 - 02:26 | 1676274 Moon Pie
Moon Pie's picture

BONK of America has already greased the wheels.  It has moved servicing on almost all CFC loans over to BAC proper (from BAC Home Loans, Inc.).  Meaning, that when the whip comes down, CFC/BACHL will be on the hook for the paper, but not for the servicing.  BAC keeps the servicing biz and the investors (and borrowers with claims and damages awards) are left fighting over pennies on the bitch-dollar.

What a country.  Meanwhile Angelo dines on kobe beef and cognac, secretly buying/backing every pawn shop on the east coast and using gold bars as doorstops.

He should be sent to Afghanistan and made to wear a t-shirt that is emblazoned with "NAVY SEAL" across his chest and set loose in the NW territories.  He'd maintain his orange tint at least until the crimson took over.

Fri, 09/16/2011 - 02:33 | 1676282 Moon Pie
Moon Pie's picture

Forgive the unintended and inadvertent dishonor, fellow shipmates. 

This miscreant and those that blessed him, profited with him and enabled him and are actively deconstructing our land and all its goodness and are treasonous bastards that need to come to account.

Fri, 09/16/2011 - 04:38 | 1676357 Miles Kendig
Miles Kendig's picture

We are fighting a global war on terror and these folks are the very definition of financial terrorist.  This is why we have law covering enemy combatants.  Send the fuckers to Gitmo and give 'em a trial by military tribunal

Fri, 09/16/2011 - 11:07 | 1677088 Tijuana Donkey Show
Tijuana Donkey Show's picture

It's a global war on people who OPPOSE our terror, I think your copy is missing some words.......

Fri, 09/16/2011 - 05:51 | 1676390 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Angelo would lose the shirt, be discovered prostrate on a rug facing Mecca, become worshipped by the Tollybahn as the Orange God, and within five years control the halal mortgage biz throughout the Crescent...with the assistance of the Squid, of course...

Fri, 09/16/2011 - 08:27 | 1676531 MFL8240
MFL8240's picture

Can't get China to buy Countrywide??  Seems like a good fit, they seem to like buying junk paper.

Fri, 09/16/2011 - 09:41 | 1676756 FreeNewEnergy
FreeNewEnergy's picture

I think you have that right, but here's the kicker. Because of MERS, multiple assignments, Fannie and Freddie, BAC Home Loans is nothing more than a debt collector. They cannot foreclose on anybody because they are only a servicer, not the note holder, so I'd love to see Moynihan kick CFC into bankruptcy, then, when the news hits that any BACHL/CFC mortgage is technically worthless paper, homeowners would be well advised to simply stop paying, though, as a debt collector, BACHL could still go after MONEY, but not REAL PROPERTY, and could garnish wages, bank accounts, etc.

Obviously, BAC doesn't want the houses, they want the money. I'm in such a great situation because my home is an inheritance, so they've been chasing (as my deceased father, bless his soul, used to say) a ghost, and now have a bankrupt estate with which to deal. Best move I ever made was moving into my father's house after his death and stopping the mortgage payments. My sister wanted to deed in lieu back to the bank. I no longer discuss money matters with her.

Free house? Yes. For two years and two months now. Looking at filing for quiet title, but waiting for the most opportune time, like when BAC drops to 5 and Cuntrywide is shuffled off to bankruptcy court.

Looks good. Please keep Moynihan in place. He's my bud.

Fri, 09/16/2011 - 02:33 | 1676277 xtop23
xtop23's picture

Bring it on Moynihan. In point of fact, I have one of those Countrywide mortgages myself . Upside down 75K in my home and I thought Id bought at the bottom . Pulled the trigger because of a sweetheart deal 30 year fixed rate at 5% with 0 down Nehemiah ( which was due to expire in 3 months ) and 20k in my pocket . 

I can walk no problem . Come and get it bitches .

I was always the " you always pay your debts " kinda guy until these fuckers changed the game . Now I'm playing by their rules .

Fri, 09/16/2011 - 02:31 | 1676278 PhattyBuoy
PhattyBuoy's picture

Welcome to the decade of the living dead ... are there any banks left on the planet that are not a suppurating zombie ?

Fri, 09/16/2011 - 02:46 | 1676290 carbonmutant
carbonmutant's picture

How 'bout a Fed-free bank?

Bank of North Dakota

Fri, 09/16/2011 - 02:51 | 1676297 BlackholeDivestment
BlackholeDivestment's picture

...not zombie? Nope, it's Wild Zero B movie time lol

Fri, 09/16/2011 - 02:41 | 1676285 scrappykoala
scrappykoala's picture

Well I have $480 riding on oct $6 puts so I hope to get paid but in all honesty I have written this off about 6 hours after I purchased them when Warren Buffet put in several billion. Talk about bad timing lol.

Bottom line is these jokers are good at buying time and making it all look good for another few weeks or months. And I would say the same for the market as a whole. Today I saw foreclosures up 33% in a month, manufacturing down to zero and jobless claims soaring all in one day and walstreet partyed like it was 1999 was hilarious.

Thank god I give myself outs and dont go in too heavy. I give myself some time (in my larger positions) because these freaks know how to rebalance the books.

The force is strong with these ones but the markets shall prevail.

Either way I want a damn sail boat out of this market and I will get one ... the force be damned Im getting my sailboat I swear it ... I even pinky swear it.

Fri, 09/16/2011 - 02:44 | 1676289 xtop23
xtop23's picture

You could go long Greek debt and get that sailboat in no time :)


Fri, 09/16/2011 - 03:58 | 1676331 scrappykoala
scrappykoala's picture

And then sail in to greece like a real champoin. I like your ideas.

mabye buy a greek relic on the way like a church or something ... this could be done .... bar-b-que some greek food on the stern mmmmm

Fri, 09/16/2011 - 07:39 | 1676457 Tater Salad
Tater Salad's picture

Congrats scrappy for jumping on the most crowded traded in the history of the planet. 

Good luck with that one, especially considering you're already getting the proverbial shit kicked out of your trade.  BAC won't go under, I'm not sure what the general public doesn't understand about this.  TBTF is an understatement.

Problem is, they'll stay solvent for much, much, much longer than anyone on here can wait out a trade.  Like if or hate it, that's the nature of the markets, and that's why it's not an easy game.



Fri, 09/16/2011 - 02:43 | 1676287 yipcarl
yipcarl's picture

6.5 billion?  LOL.  freaking LIES.  6.5 billion X 20 try that. Ever heard of derivatives?  

Fri, 09/16/2011 - 02:51 | 1676296 John Ford Kennedy
John Ford Kennedy's picture

After CFC go bankrupted, will my mortgage with CFC become zero? If so, that's a gd way to save the Uncle Sam's economy.

Fri, 09/16/2011 - 02:55 | 1676301 xtop23
xtop23's picture

It'll just get rolled over into whatever entity is backed up with Benny bucks and willing to take the no risk loan onto their books . No jubilee as of yet my friend .

Fri, 09/16/2011 - 02:55 | 1676300 lolmao500
lolmao500's picture

Isn't it illegal to put all your bad stuff in some place, let it bankrupt and keep all the good stuff?

Fri, 09/16/2011 - 02:59 | 1676305 Hephasteus
Hephasteus's picture

Only if you're not a bank. And you really should be a bank. All you gotta do is make it past the terroist label and the highly armed idiots who are 'called" by god to destroy your evilness.

Fri, 09/16/2011 - 04:20 | 1676344 Arkadaba
Arkadaba's picture

Already have my defence: I am doing God's work!

Unfortunately, the nuns don't like it:


Fri, 09/16/2011 - 02:57 | 1676303 bob_dabolina
bob_dabolina's picture

Someone here is being malicious

Fri, 09/16/2011 - 03:08 | 1676308 chump666
chump666's picture

Just watched HFT's take the AUD to 1.30 option knockout, even with USD selling.  Anyone alive, watch FX markets now...some crazy sh*t

Fri, 09/16/2011 - 03:36 | 1676321 Master Chef
Master Chef's picture

What's cooking?

The way PMs are being taken down in the run-up to the weekend suggests something is about to go down.

The idea is to take them down far enough so when bad news hits the rebound is not too high.

Lets see what the friday drop is...

Fri, 09/16/2011 - 03:46 | 1676326 Hephasteus
Hephasteus's picture

PM's are going down hard and shit is going to get really ugly around september 23rd. You're an idiot if you sell pm's though.

Fri, 09/16/2011 - 04:09 | 1676332 BayAreaAlan
BayAreaAlan's picture

Significance of 23-9?

Fri, 09/16/2011 - 06:42 | 1676405 mvsjcl
mvsjcl's picture

The two-day Fed meeting.

Sat, 09/17/2011 - 23:42 | 1681234 Hephasteus
Hephasteus's picture

The fall solstice. It's extremely important during tightening depressions.

Fri, 09/16/2011 - 04:12 | 1676337 Arkadaba
Arkadaba's picture

It almost is too obvious though. 

Fri, 09/16/2011 - 07:46 | 1676471 scatterbrains
scatterbrains's picture

I'm thinking hedgies are dumping their winning trades as they unwind and die.. I want to add to my pm's but I keep thinking the collapse will be breathtaking.. for a few hours anyway before it ramps to new highs.

Fri, 09/16/2011 - 09:50 | 1676793 FreeNewEnergy
FreeNewEnergy's picture

They're dumping the losers too. Combined NYSE & NASDAQ new highs - new lows have negative seven of the last eight sessions.

Fri, 09/16/2011 - 03:43 | 1676324 Chinese_Trader
Chinese_Trader's picture

This option is the same argument as the "good-Bank-bad-Bank" argument in 2008. Its all the same. There is no way out of this. Imagine taking out the bad loans and package it, what are the repercussions, it is merely transferring the liability across, benefiting one and making another liable. Who is willing to be an open patsy? Imagine people who has been dealing with CFC on the basis of good faith that Bank Of America is backstopping it will then have a total collapse of confidence on entity like ML and other lesser and poorer performing units, and let us see whether from then they will have access to funding!





Fri, 09/16/2011 - 04:23 | 1676346 blunderdog
blunderdog's picture

Call the bluff.  Every bank can do whatever they want with every single dollar asset/liability on their books.

Float the new currency, already. 

We revalue the *real* economy in the fookit and let the lawyers and bankers fight over the rest.  Bretton-Woods fixed-exchange of $1million to each fookit.

It's the only way to be sure.

Fri, 09/16/2011 - 04:28 | 1676350 Ponzi Unit
Ponzi Unit's picture

Although possible, the CFC bankruptcy sounds like an empty threat, like threatening to shoot the hostage.

Fri, 09/16/2011 - 04:31 | 1676352 Miles Kendig
Miles Kendig's picture

especially when the hostage is your binge buddy sack ho

Fri, 09/16/2011 - 04:34 | 1676351 Miles Kendig
Miles Kendig's picture

BAC still purchased and warranted a slew of CFC mortgages.  This may sound good but quality lawyers should be able to deconstruct a CFC bankruptcy IF it isn't another pre-pack like GM/GMAC where the feds make  a mockery of the precepts of the rule of law. 

Fri, 09/16/2011 - 05:20 | 1676367 Die Weiße Rose
Die Weiße Rose's picture

damn - run out of red ink again

well - just print it in green then...

Fri, 09/16/2011 - 05:14 | 1676372 Goldenballs
Goldenballs's picture

If you got no loot you just can,t shoot,if you got no cash you gotta dash,if you got no bread your as good as dead,

Doctor Feelgood - Years ahead of their time and the Governments,Central Banksters,Banksters,etc.

As long as the price is right !!!!!!!!!!!

Fri, 09/16/2011 - 05:34 | 1676378 props2009
props2009's picture

FT Alpha: Did USD injection really matter and was it needed with LIBOR at 0.35

Fri, 09/16/2011 - 05:35 | 1676379 Dingleberry
Dingleberry's picture

Maybe we'll have another LTCM-style bailout for B of A, albeit with more Fed backstopping. Maybe Jamie can pick up another corpse on the cheap. We already have Uncle "bathtub" Warren on board, and he only moves if the game is rigged.

Fri, 09/16/2011 - 06:07 | 1676394 lolmao500
lolmao500's picture

Merkel is acting like a fascist again :

German Chancellor Merkel says must think about mid-term possibility of Europe intervening in states that do not fulfil duties

Aka we'll invade your butt if you do not lick the EU boots... and by invade I mean ``abolishing your financial sovereignity``. Merkel is scum.

Fri, 09/16/2011 - 06:17 | 1676398 Goldenballs
Goldenballs's picture

Empire building is a terrible thing and not highly visible anymore,when you control a countries money you make the entire nation a debt slave vassel state.Civil wars looming over current years,why bother to work hard and produce anything when the wealth is shipped abroad ...........see Germany and reparations post WW1 and the hyperinflation of the Weimar Republic,rise of Fascism and Hitler.

Athens,Dublin,Lisbon,Rome,Nicosia,Madrid (to be added to) say

We refuse to pay our debts !!!

Berlin say, Panzers .. ROLL,SCHNELL...

Fri, 09/16/2011 - 06:39 | 1676404 El Gordo
El Gordo's picture

BOA shouldn't even be here to start with.  I just wish the government would use some vaseline next time they hose us down.  Looks like it's set to go though.  All the meat has been picked off the bones, so throw the carcass out for the jackels.

Fri, 09/16/2011 - 06:43 | 1676407 Atlantis Consigliore
Atlantis Consigliore's picture

"Springtime for Merkel, und Germany,  da, da da da, 

 look out, we re broke, at a faster pace;

look out here comes the Deutschmark ACE....!!!!"

dont be stupid be a smarty come and join the DEUTSCHMARK party.


soon or later, LIEBSCHEN,  if you love me, you will vote for me. lol. 

Fri, 09/16/2011 - 07:33 | 1676441 overmedicatedun...
overmedicatedundersexed's picture

BOA being the out front bank for illegals did you alot of good-lost my business when your CEO was pumping CCards for illegals and no doc loans for same. how did that work out? Mazillo out smarted you dumb fkers not that it was hard even a high school drop out mexican did it.,

Fri, 09/16/2011 - 07:32 | 1676443 tdaileader
tdaileader's picture

Bank of America guaranties Countrywide's debt.

On November 10, 2008:

"If you were a Countrywide Financial corporate debtholder, we're taking on the obligation to pay you back," Bank of America spokesman Bob Stickler said Monday.

In the Second Supplemental Indenture, dated November 7, 2008 (and contained in the Form 8-K dated November 10, 2008, Bank of America clearly assumes the liability of all Countrywide's debt securities. Bank of America previously had kept the subsidiary at arm's length and provided financing to the acquired subsidiary.   

If Hendler's case is that somehow Bank of America assumed these obligations, while avoiding others, or managed to not consolidate the operations, or treat Countrywide only as a stand-alone subsidiary, with its own employees, accounts, etc., I am doubtful that this occurred. Otherwise, defaulting on Countrywide's obligations likely could spread to demands for payment from Bank of America itself.


Fri, 09/16/2011 - 08:13 | 1676515 unununium
unununium's picture

+1 quadrillion dollar swap line

Bank of America clearly assumes the liability of all Countrywide's debt securities.

Any CFC filing would be a pure cynical legal hail Mary maneuver designed mainly to buy time.

Fri, 09/16/2011 - 10:12 | 1676501 unununium
unununium's picture

This is a trial balloon of desperation and they are just praying you don't laugh.

Does anyone really believe that the litigants are going to happily walk away with a tiny fraction of "Countrywide's" assets, without looking through to BAC?

Does anyone really believe that BAC "took pains" to retain Countrywide as a separate entity when everything BAC did screamed "we are CFC!"

Does anyone remember that Countrywide assets were not purchased in distress but that this company was bought hook, line, and sinker for it's incredible growth story???

What an obvious hail Mary pass.  They are probably shocked that it's being taken seriously by anyone.

Getting it called a "nuclear option" is a great victory for Brian "Bagholder" Moynihan.  Congratulations on that Brian.

Fri, 09/16/2011 - 09:01 | 1676624 monopoly
monopoly's picture


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