Tuesday, October 4, 2011

Bank of America's 'nuclear option': Countrywide bankruptcy

Bank of America Corp. (NYSE: BAC) chief executive Brian Moynihan recently would not rule out the idea of putting Countrywide Financial into bankruptcy to cap its mortgage-related losses, but on Friday Bloomberg news reported that such a move is considered a "nuclear option" inside the bank.

Bank of America's 2008 takeover of Countrywide is now considered a financial disaster because of Countrywide's exposure to subprime loans. But Countrywide has remained a separate legal entity, giving Bank of America the option of putting it in bankruptcy, a move that could protect BofA from greater losses.

Bloomberg reported that a bankruptcy filing is not imminent and "executives recognize the danger that it could backfire by casting doubt on the financial strength of the largest U.S. bank."

During a recent presentation, Moynihan got direct questions about putting Countrywide into bankruptcy. Moynihan didn't rule it out.

"There are a ton of options around all that stuff that we continue to work on. So that's all I will say," Moynihan said during his presentation earlier this week.