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No. of Recommendations: 4

You wrote, Thanks for going the extra mile, Joel!

No problem. I did my DD on this back in 2008. Looking it up again wasn't that hard. I even posted about it on the Yahoo Finance CFCpB board back then. Shoot, I believe I even speculated about the structure of the merger and the fact that without an explicit guarantee, BAC could raid the CFC subsidiary and then bankrupt it if it became a liability.

Also, Now, if the panic over BAC remains/increases ( especially if they use the "nuclear option", aka bankrupting the CountryWide division to avoid mortgage put backs/lawsuits), we'll have a chance for a potentially profitable binary event:

Buy ( more ) CFCpB at distressed prices...and do quite well....unless BAC itself goes under. ;-)

Honestly, BAC has gotten me worried in recent months - not just the CFC unit. I really wish I hadn't been quite so greedy. I had been planning to unload some of my holdings when CFC-B got up to 24+. It got there, but I rationalized hanging on to an out-sized position because "there wasn't anything better." Now the shares are back to their distressed pricing levels.

In fact in my greed, I purchased a few hundred shares of CPP over the past 2 years, knowing full well that they had not been explicitly guaranteed. Now I'm contemplating unloading some of those shares and taking a small capital loss on the position. (I'm also holding a position in BML-Q; but it's much smaller and was originally a Merrill issue.)

BTW, I personally don't think it would be worth it to BAC to put the CountryWide unit into bankruptcy (CFC is a good scapegoat on paper, until you realize that BAC and Merrill also issued and underwrote a lot of these bad legacy loans, so ditching CFC won't magically make all the lawsuits go away); but it's not like I have a crystal ball. If the litigation liabilities get that bad, BAC will probably be down to a choice between bankrupting CFC or having itself placed into receivership by its regulator.

Oh. And I'm also not entirely happy with some of the cost-cutting moves they're making. But then as an engineer and I've never been sold on the idea that out-sourcing is a panacea for a company's financial ailments. (Sure, it works for some things; but it's lousy for others.)

What do I think needs to be done? More automation. More controls. More centralized risk management. More centralized, advanced planning and forecasting. A focus on efficient processes. A focus on delivering value to its customers at a reasonable cost. And less of the fly-by-the-seat-of-your-pants we-have-to-do-this-because-we-have-to-do-something-different mentality. New, more enlightened leadership that understands where the risks and opportunities really are and not just people making moves to help pacify their boss or Congress.

Do I think any of that will happen? No. Will the current management sink the ship? Like I said, my crystal ball isn't that clear.

So in the end, I'll probably lighten up some (or just buy puts on BAC common as a hedge) and ride it out for a while longer. Add more? Probably not. Its not that I don't think CFC-B is a good buy - it's just that I'm already too exposed to BAC at this point and BAC is simply too risky to hold too much of it. Would I recommend CFC-B? Sure - if you don't have any, it's on sale now and would be a good addition to a portfolio in moderation.

- Joel
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