I don’t know whether to be furious or relieved.

While at our Oxford Club Chapter Meeting in Colorado Springs last week, I happened to learn that Countrywide Financial Corp. (CFC) was planning to host several dozen mortgage company reps at the nearby Ritz-Carlton Bachelor Gulch ski area in Avon.

Unfortunately, public disclosure by The Wall Street Journal and other papers ruined their plans and the Calabasas, Calif.-based Countrywide cancelled at the last minute.

Countrywide claims to have cancelled all similar events, too, for the rest of the year "in light of recent events."

It’s for the best – believe me – for "swank" doesn’t begin to describe just how nice the Avon Ritz really is. For starters, weekday rooms there start at $750 a night.

As reported in the Rocky Mountain News, the multi-day soiree was set to start with cocktails and ski-fittings. Attendees were then to be feted at Spago on such delicacies as $105 a plate Kobe beef and $140 caviar, before enjoying a multi-day fiesta including hotel rooms, meals, skiing and gratuities – all of which was to be paid for by Countrywide and all of which is in line with annual industry "meetings" they’ve held since the 1990s.

Silly me … I thought the industry was in the dumper and that the company was struggling after taking $1.6 billon in losses during the second half of 2007.

Evidently things at Countrywide are a lot "richer" than most people think – and why shouldn’t they be?

If you recall, we suggested months ago that the real reason Bank of America Corp. (BAC) is buying Countrywide has nothing to do with the hundreds of millions of dollars worth of yearly loan-servicing revenue. Nor does it have anything to do with Countrywide’s dominant market share.

Instead, we posited that BofA was going to use Countrywide’s losses to offset its own taxable income.

Turns out we may have been "righter" than we care to admit.

Under the terms of the deal announced in January, Bank of America agreed to pay $4 billion in its own stock for Countrywide – slightly less than $8 a share. Proponents viewed the takeover bid as a much-needed rescue mission for Countrywide, which many believed to be out of cash at the time.

Just before the offer, Countrywide had seen its stock price plunge about 85% – a decline that steepened in the days immediately before Bank of America launched its bid.
Critics say the buyout offer was a bit on the rich side – especially after BofA Chief Executive Officer Kenneth D. Lewis had already injected about $2 billion into Countrywide to help prop it up last summer as the subprime mortgage crisis started to spiral out of control.

With mortgage defaults escalating, Countrywide was forced to boost its loan-loss provisions, leading to a loss of $1.2 billion in the 2007 third quarter and $422 million in the fourth quarter.
According to tax experts like Robert Willens, who was quoted in Fortune magazine at the time, the deal could be worth billions to BofA by the time all is said and done. In fact, in the first five years it owns Countrywide, BofA will be able to use a total of $1.35 billion of Countrywide’s losses to shelter its income. That works out, incidentally, to $270 million a year.
But here’s the kicker.

If Countrywide’s losses exceed $1.35 billion when the transaction ultimately closes [it's supposed to be finalized in the third quarter, as the two companies continue to work out the details], Bank of America could deduct the rest of the losses without limits beginning in year six.

What a country …run up billions of dollars in losses, hand your executives hundreds of millions in compensation, nearly wreck an entire industry single-handedly, spend millions on boondoggles…and qualify for an IRS sanctioned tax break at the same time!

Where do I sign up?

Wait…I already did. My wife and I got our mortgage through Countrywide. At least we haven’t been "countryfried" – yet.

Maybe that’s why shares of Countrywide rose a penny each after the ski trip was cancelled…to $6.96.

News and Related Story Links:

• CNNMoney.com:
  Countrywide Cancels Ski Trip Meeting.

• Money Morning News:
  Bank of America Will Buy Countrywide for $4 Billion in Stock.

• Money Morning News:
  Countrywide CEO Still Gloomy After $2 Billion Capital Infusion.