Look for hundreds of jobs to bite the dust in mortgage-backed securities structuring, trading and risk management if Bank of America absorbs Countrywide Financial.
Industry experts tell eFC that at least half of the 800-plus people who remain in Countrywide's capital markets business will be let go if B of A acquires the troubled California-based lender. The casualty count could be still greater, because Countrywide's mortgage business - along with everyone else's - has fallen sharply since mid-2007, and the firm has been steadily downsizing in recent months.
The proposed purchase, for Bank of America shares initially valued at $4 billion, was announced last Friday.
"I would expect that B of A would maintain the mortgage origination engine at Countrywide but scale back the mortgage firm's forays into capital markets. The combination will make many risk managers and capital markets professionals - traders, pipeline hedgers etc. - redundant," says Jim Geiger of Analytic Recruiting, a New York search firm that focuses on quantitative roles, including structured finance and risk management. He adds that deterioration in Countrywide's underlying business, along with a merger into B of A, will impact many people in capital markets and risk management roles at both firms.
Both Institutions Are Expert in Mortgage Securities
Wall Street compensation consultant Alan Johnson anticipates Charlotte, N.C.-based B of A will opt to retain about half of Countrywide's capital markets work force, which stood at 855 people at the end of 2007.
"In most acquisitions, the headcount (consolidation) always favors the guy buying," Johnson says. "Probably that's particularly true in this case. B of A is obviously bigger and more sophisticated," so its existing capital markets desks will be able to absorb much of the work associated with managing the Countrywide portfolio.
A recruiter who asks not to be identified says both companies are sophisticated players in mortgage securities markets and have "deep expertise" in risk related to mortgage products. He believes B of A will "cherry pick and take the best" from Countrywide, and notes "there are some excellent people there." The new organization is likely to be a hybrid of the two existing ones, he adds.
As of December 2007, Countrywide employed 50,600 people, according to a statistical release on its Web site. The figure was 18 percent below its July 2007 peak of 61,586. Capital markets staffing was 855 at year-end, a 25 percent decline from its July peak of 1,136. Securities trading volume and capital markets purchases fell by larger percentages during the same period.
In August, B of A paid $2 billion for a 16 percent stake in Countrywide. Focused almost exclusively on mortgage lending and related businesses, the California firm was severely damaged by the sub-prime meltdown. It's had to deny repeated rumors of bankruptcy, and the B of A deal is widely described as a rescue.
Credit and mortgage-related losses also have plagued Bank of America. In October the company announced 3,000 layoffs from its corporate and investment bank, after reporting that fixed-income trading losses slashed investment banking profit by 93 percent in the third quarter. It's expected to write down the value of mortgage holdings by $4 billion to $6 billion when it reports fourth-quarter results on Jan. 22.