Countrywide shares up on speculation of sale

Bank of America Corp. is considering the purchase of Countrywide Financial for a little above $4 billion in stock, sources briefed of the transaction said Thursday. The news sent share of Countrywide soaring up to more than 50 per cent.

The ‘unusual market activity,’ prompted the New York Stock Exchange to ask Countrywide to issue a statement on any corporate developments that may have led to it. The company declined to comment, the NYSE said.

Also, a spokesman for the Bank of America said the company does not comment on market speculation and refused to issue any statement.

“Bank of America has always wanted a larger presence in mortgage banking and Ken Lewis has also said that they would wait to buy until blood is running in the streets,” said Charles Peabody, an analyst at Portales Partners in New York. “Mozilo must have thought there was a chance Countrywide wouldn’t survive.”

Bank of America's $2 billion investment last August in Calabasas, California-based mortgage lender could be recovered with the deal. The Charlotte, North Carolina-based bank holds preferred shares paying a 7.25 percent dividend convertible at $18 into Countrywide common stock. The shares have since dropped to $7.75 in New York trading, valuing the company at $4.48 billion.

Countrywide has recently suffered a rough drive. As the nation’s largest mortgage lender, it offered loans to high-risk borrowers and helped fuel the housing boom. But with the declining of home prices last year and rising of borrower defaults, Countrywide’s lending practices drew attention from legislators, regulators and consumer advocates.

The increasing financial pressure led to a crumple of Countrywide’s stock in 2007, as it drained $20 billion in market value, dropping 80 per cent. Shares of the mortgage lender plunged further this week driven by speculation about a bankruptcy filing, which the company denied.

The borrowers are unlikely to be affected by the sale of Countrywide. However, it is anticipated that the sale price would not please the investors. Also, it is supposed that shares of Countrywide may go down further if the deal fails to come through.