CHARLOTTE, N.C. – Bank of America Corp. (NYSE: BAC), the second-largest U.S. bank, has acquired $2 billion in non-voting preferred stock in the nation’s largest mortgage lender, the troubled Countrywide Financial Corp.
The move helped the nation’s largest mortgage lender avert bankruptcy and boosted investor confidence in stocks worldwide, according to Bloomberg News.
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“Countrywide is no longer on the endangered company list,” Punk Ziegel & Co. analyst Dick Bove wrote in a note to clients last night. “This investment makes sense for both companies. Bank of America will now presumably be the preferred lender to Countrywide.”
The cash infusion will allow Calabasas, Calif.-based Countrywide to keep making loans, despite the highest default rate on U.S. subprime home loans in 10 years.
The preferred stock, yielding 7.25 percent annually, can be converted into common stock at $18 per share. That would give Bank of America 111 million common shares, making it the biggest Countrywide shareholder.
The deal also gave Bank of America the right to match any offer for the mortgage lender, Countrywide said in a regulatory filing today.
“We believe that in the current turmoil the stock market has been underestimating the value in Countrywide’s operations and assets,” Kenneth D. Lewis, Bank of America chairman and CEO, said yesterday in an after-market statement. “This investment reflects our confidence in their business and recognizes the importance of the company in providing home financing across the country.
“We hope this investment will be a step toward a return to more normal liquidity in the mortgage markets. Countrywide has a strong mortgage origination business and it services the mortgages of one in seven American households.”
At 10:24 a.m., Countrywide shares – which had peaked on Feb. 2, but since had lost half their value – were up 96 cents or 4.4 percent at $22.78 after rising as high as $24.46 in earlier trading, Bloomberg said. Bank of America shares were unchanged at $51.65.
“With last week’s Fed action and [this] announcement,” said Howard Shapiro, an analyst with Fox-Pitt Kelton Inc., “it appears that the mortgage capital markets will return to more normal levels of activity and liquidity sooner than we thought.”
Bank of America Corp. (NYSE: BAC) is the second-largest U.S. bank, with 5,700 retail branches and 17,000 ATMs serving serving 57 million individual and small business clients. Nationwide, it is ranked by the U.S. Small Business Administration as the No. 1 provider of SBA loans, both oerall and to minority-owned businesses. To learn more, visit www.bankofamerica.com.
