January 11 Edit – Looks like a done deal. Bank of America agrees to purchase Countrywide for $4 bilion. It will beinteresting to see where this goes in the coming months and years. Theoretically, based on the price, it could turn out to be a goldmine for BofA down the road.
According to this article in the UK Guardian (and this MSNBC article) –
Countrywide Financial, America’s biggest mortgage lender, is in advanced negotiations to sell itself to Bank of America in a deal that could rescue its crippled business from the brink of bankruptcy.
Countrywide’s shares rocketed 51% to $7.75 yesterday as news of the discussions leaked out. But the California firm, which provides one in seven American home loans, is still worth little more than $3bn (£1.53bn) against $26bn a year ago.
Neither company would comment yesterday, even after the New York Stock Exchange asked Countrywide if there was any explanation for such an unusual share price movement.
Countrywide is widely viewed as one of the main culprits behind America’s subprime mortgage crisis. It was a leader in peddling loans to low-income home buyers and is under investigation by US prosecutors for allegedly misleading customers about repayment commitments.
For Bank of America, the cost of a deal would amount to less than three months’ profit. The North Carolina-based institution already has close ties with Countrywide – it propped up the mortgage specialist in August with a $2bn investment in convertible stock.