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BofA may be top lender's rescuer
The buyout deal is Countrywide's "only hope" to avoid bankruptcy, one industry expert says.
Associated Press
Published January 11, 2008
WASHINGTON - A buyout of hobbled mortgage lender Countrywide Financial likely would be approved by regulators, analysts say, because otherwise the company could file for bankruptcy, injecting further uncertainty into the home-loan market. Bank of America Corp. is in talks to acquire Countrywide, the Wall Street Journal and the New York Times reported Thursday online, citing unidentified people familiar with the deal. The transaction would put the country's largest mortgage lender, which has experienced a surge in home-loan defaults and has seen its share price plummet, in the hands of the largest U.S. bank by market capitalization. A Bank of America-led buyout is "the one and only hope that (Countrywide) has" to avoid bankruptcy, according to Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co. "I cannot imagine that the regulators want Countrywide to go under," said Bert Ely, a banking industry consultant in Alexandria, Va. "I think they're actually quite nervous about that." A combination of Bank of America and Countrywide would require approval from the Federal Reserve and possibly other agencies. Banking regulators declined to comment on the reports. Federal law bars banks from making acquisitions that would increase a bank's market share to 10 percent of U.S. deposits, and Bank of America is nearing that point at 9.88 percent. However, experts disagreed about whether deposits held by Countrywide's federally regulated thrift, Countrywide Bank, would count toward that limit. In addition, banking industry experts say Bank of America could easily lower the total amount of money held in deposits by lowering interest rates and losing deposits to competitors. A failure at Countrywide would have severe ripple effects, said Guy Cecala, publisher of Inside Mortgage Finance, including forcing the industry and regulators to figure out who would take on the responsibility of collecting payments for millions of U.S. home loans. It wasn't clear how quickly a deal might be struck for Countrywide, which has been roiled this week by rumors that a bankruptcy filing was imminent. Countrywide shares climbed $2.63, or 51.4 percent, to close at $7.75 Thursday, while Bank of America shares rose 56 cents, or 1.5 percent, to $39.30.
[Last modified January 11, 2008, 01:12:47]
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