Bank Invests In Foundering Mortgage Lender
Countrywide Financial Corp. said Wednesday that Bank of America Corp. has made an equity investment of $2 billion in the company, a deal that comes as the nation's largest mortgage lender tries to weather a credit crunch that's rocked Wall Street and the mortgage industry.
The transaction was completed and funded on Wednesday, Countrywide said.
"Bank of America, with $1.5 trillion in assets, has the largest retail banking franchise in the U.S. and is one of the most respected companies in the world," Angelo R. Mozilo, Countrywide's chairman and CEO, said in a statement.
"Bank of America's investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success," he said.
Under terms of the deal, Charlotte, N.C.-based Bank of America acquired $2 billion in the form of nonvoting, convertible preferred stock yielding 7.25 percent annually, Countrywide said.
The shares can be converted into common shares of Countrywide at $18 per share, with certain restrictions.
Countrywide's stock jumped almost 18 percent to $25.70 in extended trading after closing the regular session at $21.82.
Kenneth D. Lewis, Bank of America's chairman and CEO, said in the statement that turmoil in the stock market has led some to underestimate the value in Countrywide's operations and assets.
"This investment reflects our confidence in their business and recognizes the importance of the company in providing home financing across the country," Lewis said.
Calabasas-based Countrywide said last Thursday it had borrowed $11.5 billion from several dozen banks so it could keep making home loans.
As defaults increased on subprime mortgages to borrowers with shaky credit histories, and the problems stretched to other credit markets, Countrywide's shares plunged, hitting a 52-week low of $15 last Thursday.
The stock rebounded after the Federal Reserve cut a key interest rate on Friday. Even with the rally, Countrywide shares have lost about half their value so far this year.
Countrywide shares rose 3 cents to $21.82 during regular trading on Wednesday.
Shares of Bank of America, which rose 35 cents in regular trading on Wednesday to $51.65, gained another 1.8 percent to $52.59 in after-hours trading.