Thread: Bank of America May Acquire Countrywide, Person Says (Update

Bank of America May Acquire Countrywide, Person Says (Update2)

Jan. 10 (Bloomberg) -- Bank of America Corp. is in talks to acquire Countrywide Financial Corp., the biggest U.S. mortgage lender, a person with knowledge of the discussions said. Countrywide rose more than 50 percent.

A sale may salvage Bank of America's $2 billion investment last August in Calabasas, California-based Countrywide. The Charlotte, North Carolina-based bank owns preferred shares paying a 7.25 percent dividend convertible at $18 into Countrywide common stock. The shares have since fallen to $7.75 in New York trading, valuing the company at $4.48 billion.

Countrywide Chief Executive Officer Angelo Mozilo, 69, has failed to quell concern that the company he founded in 1969 may go bankrupt. The lender posted its first loss in 25 years during the third quarter. Mozilo had said he preferred to keep Countrywide independent rather than sell amid what he called the worst housing slump since the Great Depression.

``Angelo has lost control of the company because it would seem the regulators and auditors are driving the equation at this point,'' said Tom Atteberry, who helps manage $2 billion at First Pacific Advisors in Los Angeles. ``Angelo isn't going to have much of a say.''

Details of a transaction were being discussed by the two companies, said the person familiar with the negotiations, who declined to be identified because the talks aren't public.

Countrywide's rising stock led competing mortgage companies higher. IndyMac Bancorp Inc., the second-biggest independent home lender, rose 23 percent and Washington Mutual Inc., the biggest U.S. savings and loan, added 15 percent.

Ripple Effect

``Resolving the Countrywide mess is not a small thing,'' Manuel Ramirez, senior vice president of equity research at KBW Inc. in San Francisco, said in an interview. ``The sector has taken a beating in recent times and I suspect the worst of the declines are behind us.''

Trading in options to buy Countrywide stock jumped on Jan. 8 to the highest in more than 10 weeks and remained above the 20-day average yesterday. Buyers of the contracts may have been betting that the stock price would recover after plunging 28 percent on Jan. 8 amid bankruptcy speculation.

Countrywide issued a statement declining to comment and Bank of America spokesman Bob Stickler wouldn't respond to an earlier report about the talks in the Wall Street Journal, which cited people familiar with the situation.

Tolerance for Risk

Bank of America Chief Executive Officer Ken Lewis said last year he planned to scale back risk after profit in its corporate and investment bank fell 93 percent to $100 million in the third quarter. The bank in October named Brian Moynihan to replace Eugene Taylor as head of the investment bank and is cutting 500 jobs in the unit.

While Countrywide's market value is a fraction of its peak level of $45 billion last year, Bank of America's bigger expense would be writedowns from declining value of the lender's $209 billion loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or roughly half of the bank's 2006 profit of $21 billion, he said.

``There is significant risk to the buyer,'' said Mark Batty, who helps manage about $77 billion at PNC Wealth Management in Philadelphia. ``The credit cycle is worsening and as we know Countrywide doesn't have the cleanest of portfolios.'' Foreclosures and late payments rose to the most in more than five years during December, the company said yesterday.

Bargain Price

Bankruptcy speculation may have driven Countrywide's price down to a level that Bank of America finds attractive, said Robert Pardes, the former head of OceanFirst Financial Corp.'s Columbia Home Loans unit in New Jersey, which closed last year.

``It is an absolute opportunity for Bank of America to acquire an infrastructure they admire, including Countrywide's great technology, and, at these levels, it's mitigating most of the asset issues,'' he said. For Countrywide, there isn't ``a lot of opportunity for success over the short term.''

A deal would represent an ``honorable exit'' for Countrywide and Mozilo, said Steve Kropper, president of Lexington, Massachusetts-based Bank on Real Estate, which helps mortgage lenders find customers. Countrywide's ``obsessive focus on one business'' is yielding to the ``disciplined financial management'' of Bank of America, he said.

Breaking the Cap

Buying Countrywide may force Bank of America to contend with a 1994 law that set a 10 percent federal cap on deposits that a bank can hold as a result of a merger or acquisition. When the bank in October acquired ABN Amro Holding NV's LaSalle Bank unit, its deposit share reached 9.88 percent, the Federal Reserve estimated at the time.

Bank of America has many options to avoid the cap such as cutting deposit rates to encourage withdrawals, said Bert Ely of Ely & Company, a bank consulting firm in Alexandria, Virginia.

It's likely regulators would work with the bank to make the transaction possible given the potential negative impact of a Countrywide bankruptcy, said Gilbert Schwartz, a former Federal Reserve lawyer and now a partner at Schwartz & Ballen LLP in Washington.

``I would suspect that the regulators would welcome this'' acquisition,'' he said.

Treasury spokeswoman Jennifer Zuccarelli and David Skidmore at the Federal Reserve declined to comment.

http://www.bloomberg.com/apps/news?pid= ... =worldwide

The stocks soared today over this announcement. This is really bad news for Americans. Once again we are riding on a false economy. Bush is trying to buy himself some time before he leaves office. He knows that he has failed us in every way possible. The only thing he may do is have a peace treaty signed in Israel.

I haven't been able to find the information I want on this so let me plug some questions in here. My husband and I have been argueing about this, so here's where we are.
Rush was saying this morning that the liberal Congress kept pushing for more of the poor working class to be able to afford the American dream. Okay, so we have housing available with no more downpayment and payments tied to interest rates. Woops, rates go up, we have foreclosures. Who's fault is it?
I say it's liberals and stupid consumers
Husband says it's the banks and Countrywide type businesses taking advantage.
What do you think?

I think both the government and lending institutions share the blame equally but that could just be me.

I heard the city of Cleveland is suing BoA, Countrywide, Washington Mutual, Wells Fargo, Bear Stearns, Citi bank and others for something like $100M because of all the foreclosures and vandalism there. Seems Ohio has some kind of law that allows this.

Originally Posted by Paige

The stocks soared today over this announcement. This is really bad news for Americans. Once again we are riding on a false economy. Bush is trying to buy himself some time before he leaves office. He knows that he has failed us in every way possible. The only thing he may do is have a peace treaty signed in Israel.

The Dow dropped $246.79 today closing at $12,606.30 for the day. Fears of recession & mortgage companies caused it I believe.

We're in for a rocky ride I'm afraid.

btw, BoA lost $.80 cents today closing at $38.50.