Short interest in Countrywide spikes, suggesting BAC deal in trouble

Filed under: Deals, Bad news, Short stories, Bank of America (BAC), Countrywide Financial (CFC), Stocks to Sell

Short interest in Countrywide Financial (NYSE:CFC) moved up by a big 26 million shares as of May 15 to 102.4 million compared to the number on April 30. Someone thinks the deal for Bank of America (NYSE:BAC) to take the company over may be in trouble. Shares of a number of other financial companies were also hit hard during the period.

With everyone, including the FBI and US Congress, looking into Countrywide's lending practices and stock sales by management, the short gamble may be a smart one. The troubles at the lender may become so numerous that BAC can't stand the smell.

There may be another, less obvious, reason the the shorts think the CFC/BAC deal is in trouble. That would be Bank of America's share price. Wall Street has lost a lot of confidence in the management of the bank. Over the last three months, BAC shares have done even worse than those of Citigroup (NYSE:C) and much worse than JP Morgan's (NYSE:JPM) shares. The BAC stock is off almost 20% during that period.

It is not clear whether the near-collapse of Bank of America's stock value is due to concerns about the businesses it is in now, or the business it will be in with the buyout of CFC. Either way, Wall Street would be very happy to see a risky deal go away.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

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