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Risk fills Countrywide deal

Bank of America CEO is known for blockbusters.

CHARLOTTE, N.C. - In a career defined by blockbuster deals, Bank of America chief executive Ken Lewis has taken his biggest gamble yet with an attempt to rescue the country's biggest mortgage lender, Countrywide Financial Corp.

Lewis may have become a market savior by buying the troubled Countrywide for about $4-billion in stock, and keeping the industry and regulators from the messy task of cleaning up the bankruptcy of Countrywide, the Calabasas, Calif., company servicing 9-million U.S. home loans worth $1.5-trillion.

But Bank of America must first take on billions in mortgages at a time when the nation is facing an ever-widening credit crisis, foreclosures are on the rise, and the odds of a recession seem to grow each day.

The prize for Lewis' gamble, however, is a "state of the art" mortgage origination and back-office business on the cheap. It was unclear if there would be any changes that would affect borrowers, but Lewis said Bank of America would analyze how the deal would affect both brands.

"I am of the opinion that this is not what Bank of America wanted to do right now, but I think that their hand was forced with Countrywide teetering," said Gary Townsend, president of Hill-Townsend Capital, a private investment group in Maryland.

Bank of America paid $2-billion for a 16 percent stake in Countrywide in August.

Friday's deal, once completed, could help stem economic turmoil by giving global investors more confidence in the battered U.S. mortgage industry.

But experts say it's nowhere near a complete fix for the U.S. housing mess, as investors are still jittery about looming losses in mortgage-related investments. The threat to homeowners isn't over yet, either, analysts say, as 1.8-million subprime mortgages made to borrowers with poor credit are scheduled to reset to higher rates this year and in 2009.

"Hopefully this is a signal that things are a little bit better" in the housing and mortgage sector, said Torsten Slok, senior economist with Deutsche Bank in New York.

The acquisition isn't expected to do much - at least right away - for the thousands of Countrywide borrowers struggling to make their mortgage payments. But it's a significant development and consumer advocates are hopeful that Bank of America will do a better job of setting up loan modifications for struggling borrowers.

Countrywide shares plummeted 18.3 percent, or $1.42, to $6.33 Friday, giving back some of their 51.4 percent rise on Thursday when reports of a likely deal emerged.

As of the close of trading Friday, the deal represented a premium of 10.8 percent to Countrywide's shares.

Bank of America shares fell 80 cents to $38.50.

Shareholders of Countrywide will receive 0.1822 of a share of Bank of America stock in exchange for each share of Countrywide. The deal is expected to close in the third quarter and to be neutral to Bank of America earnings per share in 2008 and lift earnings per share in 2009, excluding buyout and restructuring costs.

The agreement has been approved by both companies' boards and is subject to regulatory and Countrywide's shareholders approval.

Merger talk developments
~ Washington Mutual has held "very preliminary" merger talks with JPMorgan Chase & Co., CNBC reported Friday. No deal is imminent, but the talks were held fairly recently. JP Morgan also may be interested in Suntrust Banks and PNC Financial Services, and is likely to make an acquisition sometime this year, CNBC reported.
~ Delta Air Lines Inc. was mum Friday about whether executives could get the green light to enter formal merger talks with Northwest Airlines Corp. and UAL Corp.'s United Airlines, the Associated Press reported. If given permission, Delta, the second-largest airline at Tampa International Airport, would ultimately choose to merge with one of the two, AP said.

[Last modified January 11, 2008, 22:54:40]