Bank of America to Buy Countrywide for $4 Billion

By Jonathan Stempel and Joseph A. Giannone

NEW YORK (Reuters) - Bank of America Corp said on Friday it would buy mortgage lender Countrywide Financial Corp for $4 billion in a move that could avert one of the biggest collapses in the U.S. housing crisis.

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

It also provide's a lifeline for Countrywide, which became a poster child for what critics say were lending excesses that fueled the housing and credit meltdown.

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 denied rumors that it might go bankrupt.

Before Friday, Bank of America (BAC.N: Quote, Profile, Research) had a paper loss of more than half the $2 billion it injected into Countrywide (CFC.N: Quote, Profile, Research) in August. Countrywide's market value has slid by 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 purchase calls for the exchange of 0.1822 of a Bank of America share for each Countrywide share. It values Countrywide at $7.16 per share, a 7.6 percent discount to its Thursday closing price, and at just 0.31 times tangible book value.

Countrywide shares closed down $1.42, or 18.3 percent, at $6.33, after rising 51.4 percent on Thursday in anticipation of the merger. Shares of Bank of America dropped 80 cents, or 2 percent, to $38.50.