Credit and Debt Blog

Rumors of Bank of America preparing to buy Countrywide swirled on Thursday. On Friday, Bank of America announced they were true.

Original speculation began during the summer of 2007 when Bank of America purchased a 16 percent stake in Countrywide. Many believe Countrywide needed the investment in order to avoid bankruptcy, although Countrywide denies that aspect.

This further expands the capacity of an industry giant already limited by U.S. deposit caps. U.S. law restricts any single bank from retaining more than 10 percent of total U.S. bank deposits.

Since Bank of America is unable to pursue further U.S. bank acquisitions, it must either acquire foreign based banks or expand in non-bank industries. This acquisition will undoubtedly expand the lending capacity of Bank of America.

The deal also exposes Bank of America to the vulnerabilities of its loan portfolio. However, the bank is large enough to weather the storm.