Countrywide falls on worry over B of A merger

NEW YORK (Reuters) - Countrywide Financial Corp CFC.N shares fell nearly 6 percent on Friday on renewed speculation that Bank of America Corp (BAC.N) will renegotiate or cancel its agreement to buy the largest U.S. mortgage lender.

The second-largest U.S. bank agreed in January to pay $4 billion for Countrywide, swapping 0.1822 of a share for each Countrywide share.

That valued Countrywide at the time at about $7.16 per share. The value of the merger has since fallen to about $3.9 billion because Bank of America's stock has fallen.

Countrywide, however, has long traded well below the exchange rate, suggesting that investors expect a lower price.

Bank of America also spooked investors last week by saying it had not decided whether to guarantee all of Countrywide's debt. Friedman, Billings, Ramsey & Co analyst Paul Miller said on Monday the bank should walk away from the merger.

In afternoon trading, Countrywide shares were down 29 cents, or 5.75 percent, at $4.75, the fifth decline in six trading sessions. Bank of America shares were off 1.7 percent, dropping 64 cents to $36.69.

Meanwhile, 49,000 put options and 8,615 call options in Countrywide stock had traded, according to option analytics firm Trade Alert. A put option is a bet a stock will fall, while a call option is a bet a stock will rise.

"My hunch is that this flurry of put activity is due to persistent conjecture in the market that Bank of America may either secure a lower price for its Countrywide takeover, take on less Countrywide debt, or walk away from the deal completely," said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.

Bank of America did not immediately return requests for comment. On Monday, a spokesman had said the merger was "on track to close, as agreed to, in the third quarter."

Countrywide is based in Calabasas, California, and Bank of America in Charlotte, North Carolina.

(Reporting by Doris Frankel and Jonathan Stempel; Editing by Brian Moss)