Regulators say didn't push for Countrywide deal

WASHINGTON (Reuters) - U.S. financial authorities said on Friday they did not actively push Bank of America Corp, the second-largest U.S. bank, and top mortgage lender Countrywide Financial Corp to forge a deal.

Bank of America said on Friday it agreed to acquire Countrywide in a $4 billion stock transaction that may have saved the company from insolvency.

If Countrywide had failed, it would have dealt a damaging blow to the Federal Deposit Insurance Corporation, which holds a $50 billion purse in the event of bank failures. Because the deal could put Countrywide back on a sound footing, some analysts speculated that federal regulators might have pushed for it.

"The FDIC was protecting their backside," said Sean Egan, managing director of independent credit-rating firm Egan-Jones Ratings Inc. "The FDIC did not want to deal with the potential failure of Countrywide."

An FDIC spokesman declined to comment on the buyout but other regulators said that they were neutral on the deal.

The Treasury Department was "aware of the discussions" between the bank and the thrift but "was not actively involved" in encouraging the discussions, according to spokeswoman Jennifer Zuccarelli.

Countrywide's regulator, the Office of Thrift Supervision, said it kept tabs on the discussions and did not play an active role in the talks.

"We were monitoring it," OTS spokesman Kevin Petrasic said. "We were not participants of the negotiations and did not take an active role in the discussions."

A spokeswoman for the Federal Reserve, which would review the transaction between Bank of America as a holding company and Countrywide, declined to comment when asked if the Fed had any role in the discussions.

The Office of the Comptroller of the Currency, which regulates Bank of America's flagship business, also declined to comment.

William Isaac, who managed many banks in receivership when he headed the FDIC in the 1980s, said Bank of America has saved regulators a huge headache.

"Countrywide was clearly on the path (to receivership). If they had stayed on that path and things had not improved, the government would have had to take over," he said.

WASHINGTON WELCOMES DEAL

Lawmakers welcomed the buyout, which they said would stabilize a housing market rattled in recent months by failing subprime loans.

"The proposed purchase of Countrywide by Bank of America could be a positive development in the subprime crisis," said Barney Frank, chairman of the House of Representatives Financial Services Committee and a Massachusetts Democrat.

No matter their involvement in the deal, regulators would have been pleased with the results, analysts agreed, because it threw a lifeline to a huge home lender struggling with liquidity problems because it could not access the capital markets.

"It's exactly what Countrywide needed," Egan said. "The company was on a downward slope for the last six months and the fear was that if they didn't find a savior soon, there would be nothing left to save."

Still, Isaac said Bank of America was not motivated by altruism and must see long-term potential in the now-troubled mortgage lender.

"Bank of America has made a pretty good-sized bet that the real estate market is at or near a bottom," he said.

(Additional reporting Mark McSherry in New York; Editing by Dan Grebler)