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Bank Of America-Countrywide Merger Cost BofA $40 Billion

A huge mistake is weighing on Bank of America.

The bank’s acquisition of mortgage lender Countrywide in 2008 has cost BofA more than $40 billion, the Wall Street Journal reports. The merger turned BofA into a big player in the mortgage market right before the housing bubble burst and since the bank has suffered massive real estate losses and paid out huge sums in legal fees and settlements with state and federal agencies.

To put the sum in perspective, JPMorgan Chase’s infamous trading loss could amount to $9 billion -- less than one-fourth of the Countrywide losses.

"It is the worst deal in the history of American finance," Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte told the WSJ. "Hands down."

Plath's not the first to pan the disastrous deal. Almost immediately after then-CEO Ken Lewis agreed to acquire Countrywide in 2008, experts wondered if the decision to double down on the housing market just as it was in the midst of collapsing was too big of a risk.

Since, the decision has proven to be costly. BofA’s mortgage business lost $8.9 billion and $3.8 billion in 2010 and 2009 respectively, according to a separate WSJ report. Just some of the settlements BofA has had to payout as a result of Countrywide: $600 million to pension investors claiming shoddy Countrywide mortgage securities lost them money, $108 million to the SEC over allegations Countrywide charged excessive fees to homeowners facing foreclosure.

Perhaps most notoriously, BofA agreed to pay $335 million late last year to settle claims that Countrywide used discriminatory lending practices.

The legal losses have been so costly that BofA was reportedly considering putting Countrywide up for bankruptcy last year. The bank would be able to put just the Countrywide unit up for bankruptcy because BofA maintained it as a separate legal entity during the acquisition.

As disastrous as Countrywide purchase was, it’s not the only unfortunate acquisition to plague BofA. In December, 2008, the BofA bought Merrill Lynch for $50 billion and at the time executives knew that the deal would sour BofA’s earnings for years to come but withheld that information from shareholders, The New York Times reports. The losses were ultimately so huge that the bank required a second bailout worth $20 billion.

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