Bad bank, bad bank

Bank of America Corp. (BAC), the biggest U.S. lender by assets, is segregating almost half its 13.9 million mortgages into a “bad” bank comprised of its riskiest and worst-performing “legacy” loans, said Terry Laughlin, who is running the new unit.  “We are creating a classic good bank, bad bank structure”…

…“It’s a way to get investors focus on the good,” said Paul Miller, a former examiner with the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “It’s a way to talk about good things and ignore the bad.”

That was in March 2011.  Here is August 2011.  Here is a chart.


So the investors didn't ignore what they wanted them to? Mean investors.

Lehman wanted to do the same thing a few months before it went bankrupt.

The old strategy of separating the bad apples from the stock works if (1) there is a commitment to produce and sell only good apples (the flow problem), and (2) there is a honest and effective effort at separating the bad apples (the stock problem). It's very expensive to implement it even in good times., and although I know nothing about BofA, this year has been a terrible time to do it.

It also works better if you have the government committed to helping you do it (and willing to turn a blind eye to sham bankruptcy). GM had that and, hey, BoA might well get that.

A bailout may be effective but it amounts to "selling" the bad apples to taxpayers thanks to the fraudulent clowns governing the country. It's just that and the winners should thanks the clowns.

As I said, the old strategy requires a HONEST and effective effort to succeed, in addition to solving the flow problem (it's not clear that GM has solved it).

Only 3.5mm of these loans were held on BAC's balance sheet, and much of them were likely already reserved for. But by all means, carry on with your groupthink and pile on with everyone else.

They are creating a classic bad bank, appalling bank structure…

Bad bank, bad!

Well, this plan only works if you have someone to take the bad bank off your hands, otherwise, you are fucked.

You know, the fact that it's Henry Blodget badmouthing them makes me want to buy......

Bingo. The stock may not be right. Henry's past investment case was stocks going higher, he only reversed direction. I'll bet his "insight" is equally valuable this time.

Why does it help at all? If I separate good and bad apples into different baskets I still own the same number of good and bad apples. Portfolio unchanged.

Its not as if the rot spreads from bad to good using biological vectors.

What you're supposed to do is put the bad ones at the bottom of the basket.

We really, really mean no more taxpayer bailouts.

This is the LAST time. Do you hear me? The LAST time.

Great comment!

“It’s a way to talk about good things and ignore the bad.”

Did someone actually say that out loud?

Assuming the bad loans have adequate reserves, I assume the point is to create a kind of tracking stock for new (non-Countrywide) business. But since investors can't invest in the tracking stock, it's meaningless.

why not call it by it's name "countrywide". It's the rotting carcas bulging out of this banking python.

I am just a humble lower middle class bozo, but even I knew that countrywide was a toxic waste heap the week BoFa was rushing it to the alter. The stock was cratering, and Bofa could have let it hit the ground, shatter, then peel of the database of millions of customers, and let the government hold the incinerator bag...but hey I don't make $20,000,0000 per year, So what the hell do I know.

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