In a blog post written today, “Mad Money” stock enthusiast Jim Cramer said he was bullish on Bank of America, partially for what he sees as a great chance for the banking giant to scoop up Countrywide at a discount next month.
Cramer mentioned several reasons why he favored Bank of America, including solid deposits, Chinese investments, and stock buybacks.
However, his final reason to buy the stock was much more compelling, the idea that Bank of America could snatch Countrywide next month and take advantage of its valuable servicing business.
“But most important, in what looks like sheer genius, in less than a month it can buy Countrywide for what looks to be on the cheap in a business that is about to get great: servicing and issuing mortgages,” Cramer said.
“I believe that the sudden rush to own servicing rights companies shows that there are going to be some big gains in that area, and Countrywide owns it.“
Cramer sees serious opportunity in the beleaguered lender, at a time when most investors have turned their backs on the shadowy industry.
“In terms of issuances of mortgages, you could be in a situation where you can take a gigantic spread simply because nobody even wants to be in that business anymore.
Back in January, the two financial giants met to discuss a possible alliance, with Bank of America reportedly mulling a buyout at $30 billion, $5 billion above the market cap at that time.
A potential buyout would be even more favorable now, with Countrywide shares near 52-week lows, valued at a mere $11.45 billion.
In August, Bank of America acquired $2 billion in the form of nonvoting, convertible preferred stock yielding 7.25 percent annually, which can be converted into common shares of Countrywide at $18 per share.
If there is indeed a takeover, it is assumed that Bank of America would service loans originated by Countrywide through their 5,747 branches nationwide.
“Bank of America will end up being the mortgage king in this country. Deposit king; mortgage king; fee king,” Cramer added.
Meanwhile, FBR analyst Paul J. Miller Jr. cut his price target on Countrywide from $22 to $20 today, predicting a larger loss in the ballpark of $3 per share for the third quarter.
The result could be a very attractive buy for Bank of America, firmly positioning the bank as the nation’s top mortgage lender.