Dedicated to Deposits: Deals, Data, and Discussion

More Concerns of Bank of America's Buy-Out of Countrywide

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There were a lot of news stories today over investor concerns of Bank of America's pending deal to buy Countrywide. As this CNN article describes, analysts have made bearish announcements today regarding this deal. If it does go forward, many think Bank of America will renogotiate the deal for a lower price due to Countrywide's growing mortgage problems.

One reader asked about what would happen to his CDs if the deal falls apart, and Countrywide Bank goes under. If your deposits are under the FDIC limits, you don't have worry about losing any money. However, there is a risk that the receiver of the failed bank decides not to continue the CD term. The new bank is free to close the CD early. The early withdrawal penalty would be waived. This is what happened when NetBank closed last year. As I described in this post some CD holders had their NetBank CDs closed early by ING Direct. On the positive side, you are also free to close the CD early without an early withdrawal penalty (see FDIC FAQ).


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Comments
7 comments.
Comment #1 by Anonymous posted on
Anonymous
I wonder if there will be a fire sale of foreclosed homes by Countrywide in order to unload them.

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Comment #2 by Anonymous posted on
Anonymous
Anyone know what the FDIC process is when a bank goes under? What do you got to do? How long does it take to get your money? Do u just do nothing and a check comes in the mail? Is the process the same with NCUA?

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Comment #3 by Michael (anonymous) posted on
Michael
Two possibilities if a bank collapses:

The FDIC gets another bank to assume the deposit accounts. The new bank contacts you directly with your new account number, etc.

The FDIC fails to get another bank to assume the accounts, and then the FDIC begins processing the payments automatically. You as an account holder do not need to do anything. The bank provides the FDIC with all of the account holders' info and address and social security number and beneficiary info, etc.

FDIC asserts they will pay you very quickly after a bank failure (perhaps even within a week or two). They will mail you a check at the registered address the bank had for you.

The only way there would be a delay is if the FDIC needed to verify the validity of beneficiaries, etc. If the FDIC suspected one or more of your beneficiaries did not qualify, they could hold your funds for further investigation, asking you to prove the beneficiary truly does qualify, etc.

The NCUA is the same way.

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Comment #4 by Anonymous posted on
Anonymous
I have stated on here several times I did not think the deal as originally structured would ever be completed and I still don't think so. I don't think the shareholders will ever approve it as is. BAC invested I think it was 2 billion in countrywide and when that was wiped out in a hurry decided to buy it all to cover up the first mistake. I am not a shareholder but if I were I would never vote for this deal as is. I would not be surprised if the large stockholders of BAC start requesting new management. Price of stock is down from about $53 to about $38 or 39 this year. The only thing its got going for it is the 6.40% dividend and if they should have to cut that they will have a lot of unhappy campers. Anyway, I think it will be settled fairly soon.

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Comment #5 by John (anonymous) posted on
John
For the first time in the past two years, I'm headed toward having basically none of my investment funds held by Countrywide....

Not because of doubts over their future or the status of the BofA deal, but rather because their online savings account and CD rates have fallen so much as to make them not competitive with a variety of rewards checking account choices.

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Comment #6 by Anonymous posted on
Anonymous
@Anon at 5:40am -- Guess what, BAC doesn't need its shareholders to approve the CFC acquisition, so you wouldn't get to vote even if you could. They're getting a great bargain, $7b is chump change to a company that made $14b last year, esp. when they're paying w/ their own stock (no cash).

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Comment #7 by Anonymous posted on
Anonymous
To anon of 10:42. Since you are so sure the deal is going thru you must be selling your cw cd's and buying their stock. You can make $2.00 per share on and investment of $5.00 which is 40% in less than 6 mo's. CFC stock sold for under $5.00 per share today. How many shares did you buy today. Do you think the smart money knows something.

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