Bank of America to Buy Countrywide for $4 Billion

By Jonathan Stempel and Joseph A. Giannone

NEW YORK (Reuters) - Bank of America Corp (BAC.N) said on Friday it agreed to acquire battered mortgage lender Countrywide Financial Corp CFC.N in a $4 billion transaction that could help avert one of the biggest collapses from the U.S. housing crisis.

The purchase marks another major but risky acquisition for Bank of America Chief Executive Kenneth Lewis, who has spent more than $100 billion since 2004 to create the nation's second-largest bank, and by far its largest consumer bank.

It would provide a lifeline for Countrywide. The largest U.S. mortgage lender has been convulsed by mounting losses and defaults, a loss of access to credit markets, and a slew of lawsuits and regulatory probes into its lending practices and Chief Executive Angelo Mozilo's pay. On Tuesday, it rejected rumors it might go bankrupt.

Before Friday, Bank of America had a roughly $1.3 billion paper loss on the $2 billion it injected into Countrywide in August as the global credit crisis deepened. Countrywide's market value has slid about $22 billion in the last year.

"I'm breathing a big sigh of relief," said Nancy Bush, managing member of NAB Research LLC in Aiken, South Carolina. "This takes out a major point of uncertainty in the industry."

The transaction values Countrywide at $7.16 per share, a 7.6 percent discount to its Thursday closing price. Countrywide shareholders would receive 0.1822 of a Bank of America share in exchange for each of their shares.

Countrywide shares fell $1.30, or 16.8 percent, to $6.45 in morning trading. Bank of America fell 60 cents to $38.70.

Shares of Washington Mutual Inc WM.N, the largest U.S. savings and loan and also a troubled mortgage lender, rose Friday after CNBC television said it had held "very preliminary" merger talks with JPMorgan Chase & Co (JPM.N).

ONE-TIME OPPORTUNITY

The combined company from the Bank of America-Countrywide deal would make close to one-fourth of U.S. mortgage loans, making its home loan business roughly twice as large as that of Wells Fargo & Co (WFC.N), which ranks second.

Charlotte, North Carolina-based Bank of America now ranks fifth in mortgage lending, according to the newsletter Inside Mortgage Finance.

On a conference call, Lewis acknowledged "near-term challenges" in mortgages, with expectations that volumes will fall amid "continued weakness in housing throughout 2008."

Still, he said Bank of America conducted "extensive due diligence" on Calabasas, California-based Countrywide, calling the purchase a "one-time opportunity" to buy "when the value is very attractive."

Bank of America Chief Financial Officer Joe Price said the bank can add Countrywide's $61 billion of deposits without breaching a 10 percent federal deposit cap because of the thrift status of Countrywide's banking unit.

The bank's $21 billion purchase of LaSalle Bank Corp from Holland's ABN AMRO Holding NV AAH.AS in October gave it control of about 9.88 percent of U.S. deposits.