January 11, 2008

This morning, the banking world woke to find out that Bank of America, the second largest U.S. bank, would be acquiring lending giant Countrywide Financial for $4 billion. The implications of this deal are many. BofA will now grow to even greater proportions (assuming they are able to get around the deposit cap set by the federal government). At the same time it saves the ailing Countrywide, it also stands to reason that BofA is going to inherit a lot of the lender's legal woes brought upon it by the subprime lending crisis (Countrywide developed an unhealthy appetite for high-risk loans).

On the plus side, however, the acquisition gives BofA a chance to gain potential new customers beyond the lending area. However, technology is going to be key to capitalizing on this opportunity, and it won't be a cakewalk either, says Christine Barry, research director with Aite Group.

The merger will bring together two companies with very large IT organizations. "Bank of America will probably take the same approach as most large banks that are acquiring another—they'll run the core systems of both companies simultaneously. This isn't the best option but it's the easiest thing to do at the beginning," Barry comments.

BofA is going to have to be very careful, however, given the fact that the bank has embarked on an effort to deepen its customer relationships and cross-selling, she explains. "Countrywide is going to provide Bank of America with a lot of potential customers for their other banking products. But because the systems aren't [likely to be immediately] integrated with BofA's, it's going to be difficult for employees to see that 360 degree view of the customers."

However, Barry says this problem should only be temporary and sees this as a situation where short-term growing pains lead to long-term gains.

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