Friday, January 26, 2007; 5:13 PM
NEW YORK (Reuters) - Bank of America Corp. (BAC.N), the No. 2 U.S. bank, and Countrywide Financial Corp. (CFC.N), the largest U.S. mortgage lender, are in talks that could lead to a joint venture or merger, the Financial Times said on its Web site on Friday.
Countrywide shares rose as much as 12.1 percent, but gave up much of that gain to end up $1.71, or 4.2 percent, at $42.00. Bank of America shares fell 36 cents to $52.04.
Bank of America spokesman Scott Silvestri declined to discuss the report. Countrywide did not immediately return a call seeking comment.
Citing people close to the matter, the newspaper said the two companies have held talks about a possible combination.
Bank of America might acquire Countrywide in a transaction that could value the latter at $30 billion, or enter a joint venture under which it would use its branch network to sell home mortgages originated by Countrywide, the newspaper said. Talks are at an early stage and could fall apart, it said.
Countrywide's market value was roughly $26.1 billion as of Friday's close.
"I think it makes sense for B of A," said Brian Rohman, who helps manage $30 billion at Robeco Investment Management in New York. "B of A is a quintessential consumer bank, with retail banking and credit cards, so this fits into that. You could make the case that they are buying assets when they are out of favor. You can't argue with the logic of that."
Charlotte, North Carolina-based Bank of America has 5,747 U.S. branches, roughly 2,300 more than any other company. It is the largest U.S. credit card issuer and controls 9 percent of U.S. deposits, more than any rival.
Countrywide, based in Calabasas, California, has said it originated $462.5 billion of mortgage loans last year.
"Bank of America is somewhat weak in mortgages," said Craig Woker, an analyst at Morningstar Inc. "Servicing mortgages generates good, steady cash flow, and big lenders like Wells Fargo (WFC.N) and Washington Mutual (WM.N) recognize that mortgages are a good way to attract customers and later build bigger relationships with them."
Any link-up would come on the heels of Bank of America's $48 billion purchase in 2004 of FleetBoston Financial Corp. and $34.2 billion purchase last year for card issuer MBNA Corp.
At a financial services conference on December 13, Bank of America Chief Executive Kenneth Lewis said he would like to fill holes in his bank's mortgage business.
"We're talking about direct-to-consumer, not wholesale, and the non customer-to-customer channels," he said. "We're very focused on building that market share out," he said.
A tie-up might also be a crowning achievement for Countrywide Chief Executive Angelo Mozilo, who founded his company in 1969 and recently extended his contract to remain at the helm through 2009, when he will be 71. In September, its longtime chief operating officer, Stanford Kurland, left the company abruptly.
Countrywide is expected to report fourth-quarter results on Tuesday. While the company has fared better than many rivals in the recent U.S. housing slowdown, tougher conditions for mortgage lenders have weighed on share prices in the sector.
"Mortgage businesses tend to be undervalued by investors," Woker said. "Mozilo is well aware what his business is worth, and he's not going to sell at a low price."
Countrywide's debt gained on the news. The yield on its 6.25 percent notes maturing in 2016 narrowed to 1.07 percentage points more than U.S. Treasuries from 1.18 percentage points.
In the options market, 35,850 calls and 28,920 puts on Countrywide were traded, more than six times the average daily volume, according to market research firm Track Data.
(Additional reporting by Karen Brettell in New York and Doris Frankel in Chicago)