Ten years after Bank of America Corp. emerged from a big California acquisition, the Charlotte bank is immersing itself in another West Coast blockbuster.
Following the official closing Tuesday of its $2.5 billion purchase of Countrywide Financial Corp., Bank of America will keep its headquarters here, just like it did after the merger of Charlotte's NationsBank and San Francisco's BankAmerica. But a lot of the company's attention will be focused on the Left Coast for a while to come.
Calabasas, Calif.-based Countrywide carries the title of the nation's biggest mortgage lender but brings a lot of baggage into the marriage – rising defaults and an avalanche of lawsuits alleging shady lending practices during the nation's housing boom. Bank of America is sending out west a group of executives led by Barbara Desoer to attack the problem. The mortgage headquarters shifts to Calabasas from Charlotte.
While Countrywide is big nationally, it's largest customer base is in its home state, the epicenter of the nation's foreclosure crisis. California accounts for 26 percent of Countrywide's $1.5 trillion mortgage servicing portfolio and 43 percent of its $87 billion loan book, according to securities filings.
UNC Charlotte finance professor Tony Plath said it's not unusual for Bank of America to distribute headquarters operations around the country, noting the bank has major hubs in New York, Boston, Dallas and San Francisco.
The bank also knows the importance of being on the scene during a crisis. It placed key executives in Texas during its first major purchase of a distressed company: 1998's acquisition of Texas's FirstRepublic Bank.
“Executives need to be on the ground to clean up that market,” Plath said.
California, of course, is already a key state for Bank of America, the nation's biggest consumer bank. The bank is No. 1 in the country's most populous state with $153 billion in deposits, about one-fourth of its U.S. total.
As of last fall, the company had about 35,000 employees in the Golden State, about 17 percent of its pre-Countrywide workforce of 210,000. The bank has about 15,000 workers in the Charlotte area.
Countrywide has a total of about 50,000 employees, but the bank didn't disclose how many are in California. The company expects to cut 7,500 jobs from the combined mortgage company of about 60,000 employees.
As Bank of America absorbs Countrywide, other top executives will be joining Desoer, who came to the bank from California's BankAmerica and was most recently chief technology officer. Top lieutenants who will be based in Calabasas include Lynn Armbrust, customer experience and business planning executive; Mike Kula, product and pricing executive; and Glenda Gabriel, neighborhood lending executive.
Despite questions about the deal, chief executive Ken Lewis has firmly backed the purchase he forged in January as Countrywide faced rumors of an impending bankruptcy filing. He says it's important for the bank to be No. 1 in a “cornerstone” product such as mortgages.
“We believe Bank of America will benefit from excellent systems and a broad distribution network that will offer more ways to meet our customers' credit needs,” Lewis said in a statement Tuesday.
Some bank insiders, however, worry that some of the company's most talented executives will be tied up with Countrywide at a time when the bank faces its own loan losses and wrestles with an economic downturn. The bank declined to comment on the concern.
The combined company will begin originating mortgage and home-equity products under the Bank of America brand by mid-2009. The bank also aims to sell its banking products to Countrywide customers.
Bank of America has said it will have a strong focus on working with customers struggling to make payments and on preventing foreclosures.
It expects to modify $40 billion in troubled loans over the next two years, keeping 265,000 homeowners in their homes. The bank will keep a combined “loss-mitigation” staff of 3,900 for at least one year.
Bank of America has said the combined company will not make subprime loans or option adjustable-rate mortgages – risky loans that once were Countrywide staples. “We have the opportunity to renew America's confidence in homeownership,” Desoer said in a statement.
California community groups are “cautiously hopeful” about the bank's approach to the state, said Kevin Stein, associate director of the California Reinvestment Coalition.
“It's hard to imagine things could be worse,” he said, referring to Countrywide. “We're hopeful they will really focus on loss mitigation and preserving homeownership.”