BofA committed to Countrywide, dividend, M&A unit

NEW YORK/BANGALORE (Reuters) - Bank of America Corp (BAC.N) Chief Executive Kenneth Lewis said on Wednesday he remains committed to buying money-losing mortgage giant Countrywide Financial Corp CFC.N, but acknowledged the nearly year-long global credit crisis still has "a ways to go."

Lewis also reaffirmed his support for the investment banking business, after indicating last year he was losing patience with uneven results from the division.

Lewis said the $3.1 billion Countrywide purchase was an important strategic move, giving Bank of America more than a 20 percent share of a large marketplace. It also remains a financially attractive deal, he said, even with credit and legal costs that may top $10 billion.

"We think we've got it right," he said of the takeover deal, speaking at a Wall Street Journal conference. "We still have room to make it a financially attractive transaction."

While many consumer advocates, lawyers and politicians have criticized the merger and Countrywide lending practices, Lewis said this has not prompted him to walk away. The No. 2 U.S. commercial bank expects a third-quarter closing for the deal.

The bank also intends to stand by its dividend payout, responding to a Wednesday note from Oppenheimer & Co analyst Meredith Whitney, who said the Charlotte, North Carolina-based bank viewed its 64 cent-a-share dividend as "safe."

Bob Stickler, a bank spokesman who dined with Lewis and Whitney on Tuesday, said Lewis did not at the dinner use the word "safe" to characterize the dividend, which offers an 8.6 percent yield. The bank raised its dividend 30 straight years.

"Ken discussed a number of scenarios in which not cutting the dividend was seen as most likely," Stickler said.

Several large U.S. banks, including Citigroup Inc (C.N), Wachovia Corp WB.N and Washington Mutual Inc (WM.N), have slashed dividends this year to preserve capital as write-downs and loan losses soared.

In New York Stock Exchange trade, shares of Bank of America fell 2.6 percent to $28.85, its lowest in five and a half years. Countrywide plunged 6 percent to $4.58.

CRISIS HAS "A WAYS TO GO"

Countrywide lost $2.52 billion in the nine months ending in March. Its financial and legal woes have led many investors to question whether Bank of America would go through with the takeover.

Last month, the bank in a regulatory filing said it might not assume all Countrywide debt, raising doubts.

The all-stock deal valued Calabasas, California-based Countrywide on Tuesday at about $5.40 per share. Countrywide shares closed 10 percent below that level, reflecting lingering skepticism that a deal will get done.

Shareholders of Countrywide are scheduled to vote on the merger on June 25.

Yet the sour mortgage and credit markets that made Countrywide vulnerable to a takeover have only grown worse.

Lewis predicted more pain ahead for the financial services industry, cautioning that while the credit crisis is in its later stages, loan losses and write-offs will head higher.

"We have a ways to go," Lewis said at the conference. "We see the end of that peaking in the third quarter, in terms of charge-offs and delinquencies. So it's going to play out over several more quarters."

These bearish sentiments, though, will not stop Lewis from continuing the bank's 10-year foray into investment banking activities. Back in October, when the unit's profit fell more than 90 percent, Lewis complained "I've had all of the fun I can stand in investment banking."

Yet now that the unit is enjoying one of its best quarters ever, Lewis appears to have changed his tune.

"I feel so much better now about our investment bank than I did, say, a few weeks ago, or a few months ago," Lewis said. The second quarter, he said, could be one of the three or four best investment banking quarters ever at the bank.

The bank has cut about a fifth of the unit's jobs, or 5,900 people, and exited businesses such as structured debt products. On Monday the bank sold its prime brokerage business to BNP Paribas (BNPP.PA) for $300 million, a difficult sale that took six months.

"We've narrowed down on what we're really good at," he said. "We're not allowing the 'mission creep' we saw before."

Lewis said he regretted his words, since it raised question in the market place about his commitment to the business. In recent weeks, B of A has announced the hires of a number of new bankers, taking advantage of lay-offs at Wall Street firms such as Bear Stearns.

Lewis's new enthusiasm for the business, though, does not extend to buying beaten-down broker-dealers. Lehman Brothers LEH.N shares fell in recent days on credit concerns, sparking speculation it will be sold to a big, well-capitalized bank.

"We are not interested in using our petty cash to buy an investment bank," he said with a laugh.

(Additional reporting by Neha Singh in Bangalore; Editing by Gerald E. McCormick and Braden Reddall)