ETF News

Countrywide Falls to 13-Yr Low on FBI Probe Reports

NEW YORK (Reuters) - Countrywide Financial Corp CFC.N shares dropped 14 percent to a 13-year low on Monday following reports the largest U.S. mortgage lender was being investigated by the FBI for possible securities fraud.

The decline in the stock came even as Bank of America Corp BAC.N, the No. 2 U.S. bank, indicated it will move ahead with its roughly $3.7 billion acquisition of Countrywide.

Investors are concerned that the bank might renegotiate or abandon the purchase, which it announced in January and has said it expects to close in the third quarter.

Scott Silvestri, a Bank of America spokesman, said Monday: “The transaction is on track.”

Countrywide is being investigated over whether it misrepresented its financial condition and the quality of its loans in securities filings, according to reports in the Wall Street Journal and the New York Times over the weekend. The papers cited people with knowledge of the case.

An FBI spokeswoman declined to comment. Countrywide has said it was unaware of any such investigation.

The stock closed down 71 cents at $4.36 on the New York Stock Exchange, just above $4.35, its lowest level since April 1995, according to Reuters data. Bank of America shares fell $1.43, or 3.9 percent, to $35.31, also on the NYSE. Stocks of large U.S. financial companies broadly declined.

Countrywide, based in Calabasas, California, already faces a wide array of lawsuits and regulatory probes into its lending practices.

Like many mortgage lenders, Countrywide has suffered from falling home prices, soaring defaults, tighter capital markets, and a plunge in investor demand for many of its home loans.

Its February monthly operating report, expected within the next week, may show how well Countrywide has weathered new capital market disruptions that began during the month.

Countrywide shares are trading about 32 percent below where they should, based on the merger terms, and some investors expect Charlotte, North Carolina-based Bank of America to renegotiate the deal or walk away.

Under the agreement, Countrywide stockholders would receive 0.1822 of a Bank of America share for each of their shares. Based on Bank of America’s closing price, that would value Countrywide shares at $6.43 each.

Some critics have also faulted Bank of America for planning to install David Sambol, Countrywide’s chief operating officer, as head of the combined company’s mortgage operations. The bank had no immediate comment on that plan.

Reporting by Jonathan Stempel, editing by Maureen Bavdek/Jeffrey Benkoe