Moody's cuts Countrywide Bank rating to "D"

NEW YORK, April 3 (Reuters) - Moody's Investors Service on Thursday cut its bank financial strength rating on Countrywide Bank to "D," or default, citing liquidity issues at its parent, Countrywide Financial Corp CFC.N and Countrywide Home Loans.

Liquidity at Countrywide Financial and Countrywide Home Loans worsened substantially in the first quarter amid continued weakness in residential mortgages and recessionary forces in the U.S. economy, Moody's said in a statement.

The liquidity issues could impair Countrywide Bank's franchise, Moody's Vice President Craig Emrick said in a statement.

The downgrade does not reflect Countrywide's planned acquisition by Bank of America, however, Moody's said. The rating was lowered from "C-minus" but is on review for upgrade pending completion of the Bank of America acquisition, Moody's said.

Moody's said it believes Countrywide has the liquidity and capital necessary to operate through the planned closing of the proposed acquisition, which is expected in the third quarter of 2008.

"However, the downgrade of the bank financial strength rating provides insight into the severity of the Countrywide ratings transition that would likely take place if the proposed Bank of America acquisition would be terminated," Moody's said.

If the acquisition is not completed, Countrywide Financial's ratings would likely be cut to a few steps below investment grade, in the low "Ba" or high "B" category, Moody's said. Its senior unsecured rating is currently "Baa3," the lowest investment grade.

(Reporting by Dena Aubin; Editing by Dan Grebler)