Bank of America is paying $4.1 billion for its purchase of Countrywide Financial. However, the main question is, who’s helping them pay for that buyout? The taxpayers of the United States.
That’s because Bank of America, which is solidly profitable, will be able to use some of Countrywide’s losses to offset its own taxable income. The tax break could total about half a billion dollars over the first five years, according to an estimate by tax guru Robert Willens, who left Lehman Brothers Friday after a 20-year run and will be in business as Robert Willens LLC starting next week. The losses could be worth considerably more to Bank of America starting in the sixth year, depending on how big Countrywide’s losses are when Bank of America formally acquires it.
At this point, of course, no one knows how much in losses Countrywide has run up since the junk mortgage market began souring and defaults accelerated. Countrywide itself probably doesn’t know. But it seems almost certain to ultimately be in the billions. In tax circles, Bank of America is famous for its 1988 purchase of the failed FirstRepublic Bank of Dallas, which was being auctioned off by federal regulators.
The Countrywide tax break isn’t in that league, but it would still be worth a lot of money. Willens estimates that Bank of America will be able to deduct $270 million of Countrywide’s losses annually for the first five years it owns the firm.
Vanessa Arellano Doctor