Bank of America (BAC - Cramer's Take - Stockpickr) on Tuesday closed its $2.5 billion acquisition of Countrywide Financial(CFC - Cramer's Take - Stockpickr), but the pain caused by the deal may only be beginning.
The all-stock deal, originally worth $4 billion when it was struck in January, makes Bank of America the nation's leading mortgage originator and servicer, while protecting its $2 billion preferred stock investment made in 2007, along with another $3 billion invested in Countrywide's common stock.
"Mortgages are one of the three main cornerstone consumer financial products along with deposits and credit cards," BofA Chairman and CEO Kenneth Lewis said in a company statement. "This purchase significantly increases Bank of America's market share in consumer real estate, and as our companies combine, we believe Bank of America will benefit from excellent systems and a broad distribution network that will offer more ways to meet our customers' credit needs."
Likelihood of Success?
The complaint asks Countrywide and the other defendants each pay a $2,500 penalty per violation. With thousands of loans involved, that could be a pretty penny.
"This puts a cloud over the Bank of America deal, says Kurt Eggert, a professor at Chapman University School of Law in Orange, Calif. "No one knows how likely it is the states will succeed, and if they do, how much it will cost Bank of America."
In this kind of civil suit, the defendant will typically file a motion stating the claim is defective, as the state doesn't have a right to file this type of lawsuit. "They will try to get a judge to throw it out before the other side engages in discovery," according to Eggert.
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