Bank of America Corp, the largest US bank by market value, plans to press ahead with its US$4 billion takeover of Countrywide Financial Corp, the mortgage lender under investigation by the FBI for possible securities fraud.
The FBI is scrutinizing whether ranking officials at Countrywide misrepresented the company's financial position and the quality of its mortgage loans in regulatory filings, said a person with knowledge of the probe on Saturday. Bank of America spokesman Scott Silvestri said the acquisition of Calabasas, California-based Countrywide remains on track.
"Nothing I've seen suggests that Bank of America is backing off," said Tom Atteberry, a partner at Los Angeles-based First Pacific Advisors LLC, which oversees US$2 billion. "It's in everyone's best interest that Countrywide avoid bankruptcy and it's hard to believe that there isn't some kind of agreement to help Bank of America avoid some of these legal problems."
Countrywide has declined 20 percent in New York trading since Bank of America offered to buy the biggest US mortgage lender on Jan. 11 in a stock swap. Investors have speculated the Charlotte, North Carolina-based bank may seek a lower price or walk away because the housing slump has deepened, with record foreclosures and falling home prices.
The FBI's probe is at a preliminary stage, said the person, who declined to be identified because he wasn't authorized to speak about the investigation. Officials at Bank of America declined to comment about the FBI probe on Saturday, the day it was disclosed in the Wall Street Journal. FBI spokesman Richard Kolko also declined to comment. Countrywide spokeswoman Jumana Bauwens said the company wasn't aware of the FBI probe.
Countrywide is among at least 14 companies the FBI is checking for possible violations tied to the subprime lending crisis, including mortgage lenders, developers and Wall Street firms that packaged loans into securities. The FBI disclosed the review in January without naming any companies.
Lenders are facing increased scrutiny from regulators as record defaults displace homeowners, roil credit markets and threaten to tip the US into recession.
"It's not uncommon for the FBI to investigate matters that have created such controversy," said Gary Townsend, co-founder of Chevy Chase, Maryland-based money management firm Hill-Townsend Capital. "This is just one more thing for Bank of America to watch as they move forward on this deal."
Analysts, including Paul Miller of Friedman Billings Ramsey & Co in Arlington, Virginia, criticized Bank of America for paying too much for Countrywide, citing the increase in overdue payments. Shareholders, including Bill Miller of Baltimore-based Legg Mason Capital Management, which held about a 9 percent stake at the end of December and the SRM Global Fund, with 5 percent, said Countrywide sold for too little.
"There are conflicting views within the Bank of America board on whether this is a good deal," said David Lykken, founder of Austin, Texas-based industry consulting firm Mortgage Banking Solutions. "Ultimately, the economics will prevail and it will get done."
Lykken said officials from the FBI have contacted him in recent months with general questions about the industry. Lykken said investigators may be focused on income and credit information disclosed by borrowers and presented by lenders, he said.
"There's a whole lot of excitement and hullabaloo, but proving criminal conduct is likely to be difficult," Lykken said. "A lot of people were caught up in the atmosphere when the housing market was booming."
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