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 provides 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 had a paper loss of more than half the $2 billion it injected into Countrywide 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.

Shares of Washington Mutual Inc rose 3.7 percent after CNBC television said the mortgage lender had held preliminary merger talks with JPMorgan Chase & Co. The largest U.S. savings and loan was one of several depressed financial stocks helped by merger speculation.

Countrywide and Bank of America together would make about one in four U.S. mortgage loans, roughly twice as many as Wells Fargo & Co, the nearest rival. Bank of America alone ranks fifth, the Inside Mortgage Finance newsletter said.

'ONE-TIME OPPORTUNITY'

Bank of America's Lewis acknowledged on a conference call the near-term challenges in mortgages, saying he expects loan volumes to fall through 2008. Still, he called the purchase of Countrywide a "one-time opportunity ... when the value is very attractive."

It was not clear how many jobs might be lost. Countrywide, based in Calabasas, California, ended December with 50,600 employees after eliminating about 11,000 jobs in the previous five months.

In a memo to employees on Friday, Mozilo said: "We have come to recognize that those companies with reliable sources of capital and liquidity and significant scale will be the ultimate winners in this environment and in the longer term."

Mozilo has been faulted for collecting some $387 million from pay and stock option gains from 2002 to 2006 and millions more this year after it was clear the housing crisis had begun. He could get $36.4 million more if the merger goes through, according to regulatory filings and compensation experts.