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Bank of America to buy Countrywide Financial

Bank of America Corp said yesterday it has agreed to buy Countrywide Financial for US$4 billion in stock, a deal that both rescues the US' biggest mortgage lender and expands the financial services empire of the nation's largest consumer bank.

The acquisition will make Charlotte-based Bank of America the US' biggest mortgage lender and loan servicer.

"Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers," Bank of America chief executive Ken Lewis said in a statement.

The buyout comes less than five months after Bank of America plugged US$2 billion in Countrywide Financial Corp during the height of the summer's global credit crisis, and just weeks after Ken Lewis vowed that making a deal in the mortgage industry would require him "to eat about seven years of my words."

It also places Lewis, an aggressive dealmaker, in the position of a market savior. By buying Countrywide, he is keeping the industry and regulators from the messy task of figuring out who would take on the responsibility of collecting payments for the millions of US home loans serviced by the Calabasas, California-based lender.

"There's still plenty of risk involved," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "He's brave to do it. But I think that it's very likely down the road to be profitable, maybe not immediately, but long-term."

Shareholders of Countrywide will receive 0.1822 of a share of Bank of America stock in exchange for each share of Countrywide. The deal is expected to close in the third quarter and to be neutral to Bank of America earnings per share next year and lift earnings per share in 2009, excluding buyout and restructuring costs.

Bank of America expects US$670 million in after-tax cost savings in the transaction, or 11 percent of the expense base of the two companies' mortgage operations.

The agreement has been approved by both companies' boards and is subject to regulatory and Countrywide's shareholders approval.

Shares in Countrywide hit record lows in recent days on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans -- those made to borrowers with weak credit.

Countrywide shares plunged more than 18 percent, or US$1.42, to US$6.33 in premarket trading after soaring US$2.63, or 51.4 percent, to close at US$7.75 on Thursday on reports of a possible deal. Bank of America shares fell 2 percent, or 80 cents, to US$38.50.

Countrywide shares have plunged 57 percent since Bank of America made its US$2 billion deal in August at US$18 per share,

As of yesterday's close the deal is worth US$4.14 billion and represents a 7.6 percent discount to Countrywide's closing price.
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