Bank of America Corp. thought it had a bargain four years ago when it paid $2.5 billion for tottering mortgage lender Countrywide Financial Corp. But the ill-fated decision has already cost the Charlotte, N.C., lender more than $40 billion in real-estate losses, legal expenses and settlements with state and federal agencies, according to people close to the bank.
“It is the worst deal in the history of American finance,” said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. “Hands down.”
If you remember John Sculley, the man who almost ruined Apple in 1983-1993, you may also remember that after Apple fired him he joined Applied Spectrum Technologies as its head, only to discover that the company was a nest of penny stock fraudsters. This was described as “the worst business decision of his life”, adding a neat bookend to Apple’s decision to hire him in 1983.
But here’s the point: if BOA had asked around the real estate community they would have heard enough alarming news about Countrywide’s lending practices to offset the corporate world’s view of Countrywide and its friend-of-Dodd Chairman Mario Mozili as a legitimate business. Had Sculley, instead of hiring a hugely expensive white shoe law firm to vet Spectrum, as he insisted he did, and asked a low brow securities fraud lawyer what the significance was of the Spectrum crowd’s NASDAQ disciplinary history, he’d have spared his reputation and a lot of cash.
You don’t need a thief to catch a thief, but asking someone who’s chased thieves their opinion of a particular individual or institution might yield information that will surprise you.