Bank of America to Acquire Countrywide for $4 Billion

By David Mildenberg
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Jan. 11 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by market value, agreed to buy Countrywide Financial Corp. for about $4 billion, five months after making a $2 billion investment in the unprofitable mortgage lender.

Bank of America will acquire Countrywide for about $7.16 a share in stock, the Charlotte, North Carolina-based company said in a statement today. The offer is 7.6 percent below Countrywide's closing price on the New York Stock Exchange, and the stock fell 15 percent today at 9:41 a.m. to $6.62. Bank of America fell 62 cents, or 1.6 percent, to $39.11.

``I hope Bank of America isn't throwing good money after bad,'' said Eric Schopf, a fund manager at Baltimore-based Hardesty Capital Management LLC, which owns 216,000 Bank of America shares, in a Bloomberg TV interview. ``They struck a deal that wasn't very attractive. Hopefully they can get it right the second time around.''

Bank of America Chief Executive Officer Ken Lewis is doubling down on the U.S. mortgage market as the housing slump enters its third year, the worst streak since 1982. The takeover of Calabasas, California-based Countrywide increases Bank of America's dependence on the slowing domestic economy, where it gets more than 85 percent of its revenue.

Countrywide, the largest independent U.S. mortgage company, gives Bank of America about 9 million borrowers and fees from servicing $1.5 trillion of mortgages. Countrywide's market value plummeted 82 percent to $4.5 billion during the past 12 months as the lender reported its first quarterly loss in 25 years.

Restructuring Costs

Lewis, who said last month he preferred to expand the company's mortgage business internally, called the Countrywide purchase a ``unique opportunity'' during a conference call today. The transaction will result in a $1.2 billion restructuring charge, the company said.

The combined company won't make subprime loans, said Bank of America. Mortgages to people with weak credit contributed to a surge in defaults last year.

``We are aware of the issues within the housing and mortgage industries,'' Lewis said in the statement. ``The transaction reflects those challenges.''

Bank of America was sitting on a potential loss of about $1.3 billion from its stake in Countrywide before reports of an impending sale boosted the mortgage lender 51 percent.

Washington Mutual Inc., the largest U.S. thrift, rose 6.1 percent on speculation that it will be bought by JPMorgan Chase & Co., the No. 3 U.S. bank by assets.

Mozilo's Future

Countrywide CEO Angelo Mozilo will stay until the sale is completed, said Lewis, adding that Mozilo probably will ``want to have some fun'' after the deal closes.

The risk of Countrywide defaulting plummeted after the deal was announced. Credit-default swaps on the company fell to 325 basis points, according to Phoenix Partners Group. Investors yesterday sought 7.25 percentage points upfront and 500 basis points a year for five years to protect Countrywide bonds. Contracts on Bank of America fell 5 basis points to 75.

The purchase, expected to close in the third quarter, will add to earnings beginning in 2009, Bank of America said. Savings resulting from the combination will be about $670 million, with about a third of that coming next year, the bank said.

Bank of America was advised in the transaction by Banc of America Securities and the law firms of Cleary, Gottlieb, Steen & Hamilton LLP and K&L Gates. Countrywide was advised by Sandler O'Neill & Partners LP and Goldman Sachs Group Inc. Wachtell Lipton Rosen & Katz was Countrywide's legal adviser.

Preferred Stock

Countrywide, founded in 1969 by Mozilo, sold $2 billion of preferred stock to Bank of America in August to bolster its finances amid what Mozilo called the worst housing slump since the Great Depression. The stock offers a yield of 7.25 percent and is convertible into common shares at a price of $18, 57 percent above yesterday's closing price.

Rising defaults among subprime borrowers, those considered at the highest risk of missing their payments, blocked Countrywide from its traditional sources of capital in the credit markets. More than 100 mortgage companies halted loans, closed or sold themselves last year. Credit losses and writedowns tied to the collapse of U.S. mortgage markets at the world's biggest financial companies total about $100 billion, according to Bloomberg data.

The takeover of Countrywide is a fraction the size of previous deals engineered by Lewis, including the $48 billion purchase of FleetBoston Financial Corp. in 2004 and $35 billion acquisition of credit-card lender MBNA Corp. in 2006.

Stock Reaction

Lewis is still grappling with fallout from the 93 percent drop in third-quarter profit at the company's investment-banking unit. He cut 500 jobs, ousted the head of the unit and vowed to scale back risk. Consumer banking accounts for about half of Bank of America's earnings.

Countrywide's market value fell below $3 billion this week for the first time in a decade amid renewed concern that the company was going bankrupt, a rumor the company denied. The speculation may have driven Countrywide's price down to an attractive level, said Robert Pardes, the former head of OceanFirst Financial Corp.'s Columbia Home Loans unit in New Jersey, which closed last year.

`Great Technology'

``It is an absolute opportunity for Bank of America to acquire an infrastructure they admire, including Countrywide's great technology, and, at these levels, it's mitigating most of the asset issues,'' he said.

Countrywide traded as high as $45.26 last January and the workforce peaked at 61,586 in July before declining 18 percent to 50,600 at the end of 2007. Monthly loans, which set a record at $53 billion in August 2005, have averaged about half that amount for the past four months.

Speculation about bankruptcy surfaced last year after investors balked at buying Countrywide's short-term debt and concern about rising defaults brought markets where the company sold its mortgages to a standstill. The lender tapped emergency credit lines and arranged a bailout from Bank of America.

At the end of 2007, more than 7 percent of payments in the company's $1.5 trillion servicing portfolio were more than 60 days overdue.

Plus this is a company that is giving credit cards to illegal aliens and anyone else, terrorist or not, without even a SSN.

It's me! Every girl ever.
Date: 2007-11-07, 10:38AM EST


Knock knock

Oh hi, how's it going? It's me! Every girl ever. I'm really looking forward to this date. I'm not nearly as attractive as you remember me being because when we met the bar was dark and you were drunk. Come on in.

Let's start off with the unavoidable tour of my incredibly typical post-college-girl apartment.

You'll notice that I went ahead and purchased everything that Ikea and Pier 1 have ever produced. There's my decorative birdcage over there even though I don't have a bird, and there's my gay wicker basket with bamboo poles in it. I don't know what the hell that's thing's all about, but I bought it.

Hey check it out, I have more candles in here than a Roman Catholic Church. Doesn't it smell like Hazelnut!? If I were to light all of my candles at once you could see my apartment from space! I fucking love candles!

Come on into the living room.

Oh, I see you met my cat there. That's "Freddy Paws Jr." Why don't you pet him and act like you like cats even though you hate cats? There you go. Oh, he took a little swing at your eye there huh? Yeah, he'll do that. Hey, let's check out the kitchen.

Hey look at my refrigerator. There are pictures all over it! Look at all these pictures of me and my equally vacuous friends from college! We were so crazy! You can tell we're really good friends because our faces are all pressed up against each other like that.

And check it out, we're holding up alcoholic beverages to the camera in every single picture. That's to prove that we were partying. College was so fun! But of course I don't talk to any of these girls anymore because now they're all bitches.

Let's go back into the hallway!

Hey, before we leave I'm going to go in the bathroom for ten minutes for some mysterious reason. Why don't you sit awkwardly in my big, stupid, round papizan chair over there while you wait for me. It's like you're sitting in a hug! Be right back...

Sorry that took a half an hour, I don't know what the hell I was doing in there. Let's go!

Wow! Thanks for opening my car door for me! I'm totally going to blow that meaningless gesture out of proportion and delude myself into thinking that you're a really good guy because that's what I want to believe.

Well, here we are at the restaurant. No thanks waiter, I don't need to see a menu, just bring me some expensive things. Hey I know, while we wait, I'll tell you all about my unspeakably boring job. I hate my boss. He's a jerk! I might get another job. Maybe something in pharmaceutical sales.

Now let's talk about my family. I love my family. I want you to love my family. I want my family to love you. I want you to make love to my family! I want you to go golfing with my semi-retarded brother Travis. That would be so God damned cute!

Wow! I can't believe I ordered all this food! I have no intention of eating any of it. No thanks waiter, we don't need a box. Just throw it out.

Hey, I've got an idea, let's go to a bar and have an after dinner drink! It'll be great, it will be just like how we're drinking here, only it will be louder and we'll have to stand up. Come on!

See, isn't this better? Oh hey, what a coincidence. Look over there! It's a group of my friends that I knew was going to be here. Let's go over there so that they can judge you!

Hey, I have to go to the bathroom for a half an hour again for some reason. You can stay here and talk to my unbelievably hideous friend Christine! Christine's so ugly she scares kids! Talk to her! She has a job and a family that she wants to talk to you about too. Be right back.

I'm back! Sorry I was gone for three hours, there was a line. I want to go home now.

Well here we are at my door again. This was really fun for me and not you. You should pretend like we're going to do it again sometime! Maybe I'll see you at Target a few months from now and we can avoid eye contact because you never called me. Here, have this awkward goodnight kiss that's as empty as my soul. Good night!