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Countrywide Financial’s cumulative losses are likely to rise to between $10 billion and $12 billion, causing mark-to-market writedowns for the same amount for buyer Bank of America, Merrill Lynch said in an analyst’s research note Wednesday. “Declining home prices should continue to push CFC’s credit losses higher,” the note said.
Merrill Lynch analyst Edward Najarian also cut Bank of America’s earnings outlook and price target, saying the second-largest U.S. bank had broad exposure to consumers and this would be a “big EPS drag.” “BAC’s substantial home equity and other loan exposures in troubled geographies such as California and Florida should result in continued credit quality degradation,” the note said. “There is a risk of a dividend cut and extra earnings risk to the BAC’s acquisition of Countrywide Financial.”
