BofA may lower Countrywide deal price: analysts

By Tenzin Pema

BANGALORE (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) will likely lower its purchase price for Countrywide Financial Corp CFC.N, at least two analysts said, with Friedman, Billings Ramsey saying the bank may cut its price to the $0 to $2 level or even walk away from the deal.

Shares of Countrywide, the largest U.S. mortgage lender, fell nearly 16 percent to $5.04 in afternoon trade on the New York Stock Exchange after Friedman downgraded Countrywide to "underperform" from "market perform."

Analysts at S&P Equity Research expect Bank of America to complete the Countrywide buyout, but at a lower price due to the rapid deterioration of Countrywide's credit portfolio.

Friedman analyst Paul Miller, in a note to clients, said Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings because of the elevated credit expenses at Countrywide,

Miller cut his target on Countrywide's stock to $2 from $7.

Bank of America, which agreed in January to buy Countrywide for $4 billion, said in a filing last week there was no assurance that any of the mortgage lender's outstanding debt would be redeemed, assumed or guaranteed.

"Bank of America announced that it might not guarantee Countrywide's debt, which is most likely the first step in renegotiating the entire deal," Miller said. "We estimate that if fair-value adjustments to the loan portfolio could exceed approximately $22 billion, this would increase the odds of Bank of America renegotiating the transaction or walking away."

He said Bank of America's current purchase price allows for some adjustments to loan values as it is below Countrywide's first-quarter net tangible equity of $11 billion.