Is Bank of America Rethinking Countrywide's Value?

At some point, whenever somebody is trying to value a financial institution, a term like "tangible equity" or "book value" will start being thrown around. They're different ways of playing the assets-minus-liabilities game, but that's where the problems start: if the financial institution is in trouble, then its liabilities are worth less, which can mean that it actually rises in value.

So what's happening with Countrywide, now that Bank of America has said that it won't guarantee the mortgage lender's liabilities? Are these kind of calculations being made? Reuters has seen a report from Friedman Billings analyst Paul Miller, but isn't exactly crystal clear on what he's saying:

Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide, analyst Paul Miller wrote in a note to clients...
If mark-downs on Countrywide's loan portfolio are less than $22 billion, then Bank of America can likely offset the adjustments with fair value debt adjustments and the difference between tangible equity and its purchase price of Countrywide, he estimated.

Don't look to Dealbook to translate that into English, they just copy-and-paste it. But one way of reading it is to say that if Bank of America marks down Countrywide's assets, they can mark down the value of Countrywide's liabilities as well and still manage to justify paying money for an insolvent company. The problem of course is that once Bank of America ends up buying Countrywide, it will have every incentive to minimize Countrywide's borrowing costs, which would mean guaranteeing Countrywide's liabilities.

In any case, Miller's now saying that BofA is likely to end up paying rather less than the $6.50 or so that it originally said it would pay for Countrywide, and might bring its bid down to less than $2 per share. Which is within its rights: BofA always had more of a call option on Countrywide than a cast-iron commitment to buy it.