Bank of America (BAC) looks the fool. It put $2 billion into floundering mortgage company Countrywide (CFC), but the drop in the troubled company’s shares have taken the value of that to about $1 billion. Perhaps BAC will be forced to push more money into the pot if problems at CFC get worse.

But, some observers think not. The Wall Street Journal writes that "people familiar with the thinking in its executive suite say the company is in wait-and-see mode."

What they may be waiting to see is whether Countrywide is stable enough to buy. Bank of American already has a very large mortgage lending business. Owning Countrywide would put the bank into first place in that business in the US.

Bank of America has right of first refusal if another company makes an offer for Countrywide, but it may not wait. Armed with a substantial operational knowledge of the mortgage business, BAC is in as good a position as any other financial firm to decide whether Countrywide’s worst problems are behind it.

Regulators might be troubled by a deal, but they may think twice before letting a Countrywide credit crisis damage the rest of the financial world.

Countrywide would probably not go for much more than its current $5 billion market cap. But, that number was $45 billion just a few months ago. If Bank of America can get some realistic insight into whether Countrywide will "make it", the deal could be very sweet.

Douglas A. McIntyre

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