April 17, 2009 4:00 PM
- Text
Bank Of America To Buy Countrywide
Countrywide Banking and Home Loans office, Glendale, California, photo on black (AP)
(CBS/AP)
Bank of America Corp. said Friday it has agreed to buy Countrywide Financial for $4 billion in stock, a deal that both rescues the country's largest mortgage lender and expands the financial services empire of the nation's largest consumer bank.
The acquisition will make Charlotte-based Bank of America the nation's largest mortgage lender and loan servicer.
"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," Bank of America chief executive Ken Lewis said in a statement.
The buyout come less than five months after Bank of America plugged $2 billion in Countrywide Financial Corp. during the height of the summer's global credit crisis, and just weeks after Ken Lewis vowed that making a deal in the mortgage industry would require him "to eat about seven years of my words."
It also places Lewis, an aggressive dealmaker, in the position of a market savior. By buying Countrywide, he's keeping the industry and regulators from the messy task of figuring out who would take on the responsibility of collecting payments for the millions of U.S. home loans serviced by the Calabasas, Calif.-based lender.
"There's still plenty of risk involved," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "He's brave to do it. But I think that it's very likely down the road to be profitable, maybe not immediately, but long-term."
"It is very important not only for Countrywide's health, but for the economy's health that something was brokered," analyst Sean Egan told CBS News correspondent Anthony Mason.
The graveyard is full of mortgage lenders, reports Mason. Since January of last year, 147 have gone under. But Countrywide is the largest; the California-based company services more than nine million home loans or about one of every six home mortgages in the country.
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.
Bank of America expects $670 million in after-tax cost savings in the transaction, or 11 percent of the expense base of the two companies' mortgage operations.
The agreement has been approved by both companies' boards and is subject to regulatory and Countrywide's shareholders approval.
Countrywide shares plunged more than 18 percent, or $1.42, to $6.33 in pre-market trading after soaring $2.63, or 51.4 percent, to close at $7.75 Thursday on reports of a possible deal. Bank of America shares fell 2 percent, or 80 cents, to $38.50.
On Thursday, Federal Reserve Chairman Ben Bernanke pledged to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession.
The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
Bernanke, in a speech to a housing and economic forum, cautioned against reading too much into one report. However, he said that if employment conditions were to continue to deteriorate, that would raise risks to the economy. The big worry is that consumers might cut back on their spending, sending the economy into a tailspin.
Incoming information suggests that the outlook for economic activity for this year has worsened and that the "downside risks to growth have become more pronounced," Bernanke warned.
A housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said.
The acquisition will make Charlotte-based Bank of America the nation's largest mortgage lender and loan servicer.
"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," Bank of America chief executive Ken Lewis said in a statement.
The buyout come less than five months after Bank of America plugged $2 billion in Countrywide Financial Corp. during the height of the summer's global credit crisis, and just weeks after Ken Lewis vowed that making a deal in the mortgage industry would require him "to eat about seven years of my words."
It also places Lewis, an aggressive dealmaker, in the position of a market savior. By buying Countrywide, he's keeping the industry and regulators from the messy task of figuring out who would take on the responsibility of collecting payments for the millions of U.S. home loans serviced by the Calabasas, Calif.-based lender.
"There's still plenty of risk involved," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "He's brave to do it. But I think that it's very likely down the road to be profitable, maybe not immediately, but long-term."
"It is very important not only for Countrywide's health, but for the economy's health that something was brokered," analyst Sean Egan told CBS News correspondent Anthony Mason.
The graveyard is full of mortgage lenders, reports Mason. Since January of last year, 147 have gone under. But Countrywide is the largest; the California-based company services more than nine million home loans or about one of every six home mortgages in the country.
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.
Bank of America expects $670 million in after-tax cost savings in the transaction, or 11 percent of the expense base of the two companies' mortgage operations.
The agreement has been approved by both companies' boards and is subject to regulatory and Countrywide's shareholders approval.
Countrywide shares plunged more than 18 percent, or $1.42, to $6.33 in pre-market trading after soaring $2.63, or 51.4 percent, to close at $7.75 Thursday on reports of a possible deal. Bank of America shares fell 2 percent, or 80 cents, to $38.50.
On Thursday, Federal Reserve Chairman Ben Bernanke pledged to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession.
The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
Bernanke, in a speech to a housing and economic forum, cautioned against reading too much into one report. However, he said that if employment conditions were to continue to deteriorate, that would raise risks to the economy. The big worry is that consumers might cut back on their spending, sending the economy into a tailspin.
Incoming information suggests that the outlook for economic activity for this year has worsened and that the "downside risks to growth have become more pronounced," Bernanke warned.
A housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said.
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