Bank of America to Buy Countrywide for $4B in Stock

Bank of America has agreed to buy troubled Countrywide Financial Corp. for $4 billion, rescuing the nation's largest mortgage lender from possible bankruptcy and adding to a financial industry shakeout that has rattled global markets.

The all-stock deal, announced on Friday morning, melds two institutions that sit on opposite ends of the recent crisis in subprime mortgages -- a bank that stopped making risky home loans before many other institutions and a once high-flying lender whose loose practices added to a global problem.

That mortgage crisis has hit hard, forcing some of Wall Street's marquee names into embarrassing disclosures about tens of billions of dollars lost on complicated mortgage deals that had become difficult to value or resell. At the Federal Reserve and other central banks, officials have been preoccupied with containing the problem, pumping currency into the financial system and considering steps to stave off possible recession.

And it still may not have reached bottom. In Asia, stock markets sank Friday after reports in the New York Times that Merrill Lynch may again have to increase, to $15 billion, its estimated losses on mortgage-backed investments. Concerns about Merrill Lynch and a report by American Express Corp. that its profits may be down this year because of dampened consumer spending and increased credit card delinquencies also hurt Wall Street today.

The Dow Jones industrial average was down more nearly 300 points at one point in the day and closed off 247 points at 12,606. Other major indexes were also down.

The acquisition of Countrywide, Bank of America chief executive Ken Lewis said on Friday, a deal driven by price, with the bank acquiring Countrywide's technology, selling expertise, and extensive network of offices and personnel at a fire sale bargain. The deal values Countrywide at roughly $7.16 a share -- nearly 8 percent lower than Countrywide's Thursday closing price of $7.75.

"Valuations are in fact very compelling," Lewis said in a conference call with analysts this morning.

Countrywide was trading at $45 a share less than a year ago -- before the extent of the subprime loan crisis began to surface, and before the flow of money through global financial markets slowed because of uncertainty about how far the problems might spread.

While Lewis said the Countrywide transaction will be good for Bank of America in the long term -- and could stave off a corporate failure that might have had broader economic implications -- the deal did little to encourage investors about the state of the mortgage and financial industries. Bank of America stock was also trading lower, falling at one point by more than 1.5 percent.

Lewis said that, despite Countrywide's troubles, the deal offers Bank of America a cut-rate path to becoming the nation's largest home lender, in addition to being its largest consumer bank. Bank of America already had accumulated the largest deposit base, and was a leader in credit cards and car loans as well.

"Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers," Lewis said in a news release.

Nevertheless, Lewis said the deal was struck only after "extensive due diligence" into Countrywide's financial and potential legal problems, and with a realization that there were still "near-term challenges" for the mortgage industry as a whole. Home sales and values have been plummeting, and Lewis said Bank of America expected "continued weakness in housing throughout 2008."