Bank of America Acquisition of Countrywide Approved

Reprinted from the CCH Federal Banking Law Reporter.

The Federal Reserve Board has approved the application of Bank of America Corporation to acquire Countrywide Financial Corporation, Countrywide's subsidiary thrift and a number of other nonbanking subsidiaries. According to the Fed's order, Bank of America already is the largest depository organization in the country when measured by total deposits. Adding the deposits controlled by Countrywide's thrift will give the organization more than $770 billion in deposits, representing nearly 11 percent of the total deposits in U.S. insured depository institutions.

The Fed was required by the Bank Holding Company Act and Reg. Y --Bank Holding Companies and Change in Bank Control (12 CFR 225) to consider a number of factors in determining whether to approve the acquisition. The public interest in the proposal led the Fed to supplement the normal process of soliciting written comments by holding two public hearings, and about 770 individuals or organizations submitted written comments, testified at the hearings or did both, the order noted. The Fed also observed that well more than 400 of the written objections were e-mail messages in one of two substantially identical forms, not individually drafted comments.

Factors in Approval

The approval order specifically addressed five separate factors:

• Effect on competition: The Fed determined that the acquisition would not have a harmful effect on competition, either for depository institutions or for the services of the nonbanking subsidiaries. Countrywide's thrift operates only in two markets, the Fed observed --Washington D.C. and Fort Worth, Texas. A statistical measure of market concentration revealed that competition would not be harmed in the Washington D.C. area. The same measure indicated that there could be too much concentration in Fort Worth, but the Fed's order concluded that the calculation was not reliable because the thrift had limited operations. For example, most of its deposits came from outside of the Fort Worth area. As far as competition in the market for the nonbanking services, the Fed found that the market for mortgage servicing and mortgage originating would remain unconcentrated and that the combined company would not control a significant share of the market for the remaining services.
• Financial and managerial resources: Bank of America's financial and managerial resources were adequate to support the acquisition. The company and its subsidiaries were well capitalized and would remain well capitalized after the acquisition, the order said, and the same was true of Countrywide's thrift. Bank of America and its subsidiaries also were well managed, and the company had a history of successfully integrating its acquisitions.
• Community Reinvestment Act: The Fed's order noted that a number of concerns had been raised about the organizations' performance under the Community Reinvestment Act. However, Bank of America's lead bank and two other subsidiaries had been rated "outstanding" after their most recent evaluations, and Countrywide's thrift had been rated "satisfactory." Bank of America's lead bank showed evidence of strong community reinvestment and community development performance, the Fed added.
• Consumer compliance issues: The two organizations' performance under the Fair Lending Act also raised concerns, the Fed said. However, although data submitted under the Home Mortgage Disclosure Act raised questions, the data were not adequate to prove noncompliance. Bank of America had pledged that it would use enhanced policies and procedures to operate the combined mortgage lending operations, dedicate substantial resources to assisting borrowers in danger of foreclosure and enhance its risk management systems.
• Public benefits, adverse effects: The acquisition would benefit Countrywide's customers and allow Bank of America to offer them more services, including more affordable mortgages and more loan work-out opportunities, according to the order. The acquisition was not likely to cause significant adverse effects, and any adverse effects would be outweighed by the public benefits.