Yesterday, Bank of America announced that, with the acquisition of Countrywide, there would be about 7,500 layoffs. In a comment on a previous Bank of America post, I was asked if the acquisition meant layoffs for Countrywide IT operations in India. Since both Bank of America and Countrywide have IT operations in India, it is a great question.
Acquisition for talent and expertise
There are many different types of acquisitions, but consider buying a company for expertise and talent versus buying for assets.
In buying for expertise and talent, you look at what you do as a company and weigh whether it is easier and smarter to build a new area by yourself or go out and buy a company that already does what you do and build from there. If you think of Google purchasing You Tube, for example, you have one company buying another for expertise and talent.
Will there be layoffs in this model? Yes. But not as many as buying for assets.
Acquisition for assets
Contrast this with buying a company for assets. Here a company purchases another for assets. Assets could be patents, portfolios, manufacturing plants, or software programs. When a company is purchasing assets, people don’t come into the value mix. Sad, but true.
Consequently, when buying for assets, there are significant layoffs. This happens because the objective is to consolidate the assets into your own company portfolio and throw the rest of the company out.
Bank of America and Countrywide
Since Countrywide stock tanked with the subprime mess, the company comes with few advantages. From the outside looking in, here is what may be valuable to buy from Countrywide:
- Loan portfolio. They do sell a lot of loans, don’t they? Having this portfolio makes you a big-time player in the mortgage business. The issue is buying the loans at the (huge) discount necessary to justify the ongoing risk of bad loans and lawsuits.
- IT platform. Countrywide has a proprietary mortgage processing application that works very well. If your platform for loans in Bank of America sucks, this would be worth keeping. In the grand scheme of the acquisition, this is nice, but not necessary.
- Sales Channel. Countrywide has loan offices everywhere and this could be viewed as an asset to be used. I personally discount this one as Bank of America has some 5,000 branches across the nation already and it would make more sense to put any Countrywide loan officers in the Bank of America branches and close Countrywide offices down.
None of those reasons to buy Countrywide include keeping a lot of people from Countrywide. They are buying Countrywide for the loan portfolio and hoping they bought the portfolio cheap enough to get long term value past the current loan losses. And here’s a harsh reason to not have Countrywide people in the mix: the management misjudged the market and failed. Bank of America does not need that culture in their successful operation.
Remember, to survive, Countrywide already laid off tens of thousands of people. The 7,500 here really gut the company. Plus, I doubt if this is the last layoff from this acquisition.