Bank of America's Success with Countrywide Will Depend on Technology, Economics and Luck

I don't want to impute too much significance to the fact that my spam folder held a solicitation offer from "Countrywide Home Loans" on the same day it was confirmed that Bank of America plans to acquire Countrywide Financial for about $4 billion in stock. But it seemed somehow symbolically apt.Even though the spam presumably had nothing to do with the "real" Countrywide, it capitalized on the reputation and come-one-come-all approach of the country's largest mortgage lender. The deal certainly is a blessing of sorts for Countrywide investors, who have seen the value of the company's stock plummet in recent months as subprime mortgage losses grew. As Countrywide became the proverbial poster child for the subprime mess, it was clear that if the lender survived it would be in a very weakened, scaled-back form. But, overall, does the acquisition make sense? Not surprisingly, Bank of America is presenting this as a fantastic deal, identifying opportunities not only to expand its retail and lending footprint in the U.S., but also to gain operational efficiencies. In an official statement the bank said, "Bank of America would gain greater scale in originating and servicing mortgages in the U.S." In the same statement, Chairman and CEO Kenneth D. Lewis said: "Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers. Countrywide customers will gain access to a broad set of consumer products including credit cards and deposit services. Home ownership is a fundamental pillar of the U.S. economy and over time it will be a key area of growth for Bank of America." Of course this presumes relatively smooth sailing in regards to some key operational challenges Bank of America will face going forward, including: integration of the two companies' lending systems(or at least honest analysis of some best-of-breed-related questions about the systems); assessment of management capabilities; detailed and objective assessment of the actual loan portfolio; and resolution of lawsuits and other legal issues related to risky loans. This clearly will be a huge assignment for Bank of America's IT organization, which presumably already is addressing integration issues related to the recent acquisition of LaSalle Bank. CEO Lewis made it clear several months ago that his focus was going to be much more on retail banking than investment banking, and if the Countrywide acquisition succeeds Bank of America will be by far the dominant player in consumer finance in this country. But, if current predictions of a declining economy are correct, it probably will take a long time before Bank of America can really reap real benefits from purchasing Countrywide. Let the second guessing begin.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio