Bank of America Corp. threw home-loan colossus Countrywide Financial Corp. a $2-billion lifeline Wednesday in a vote of confidence that could stabilize the reeling mortgage company.
The deal came as cash-starved sub-prime mortgage lenders across Southern California announced more than 4,000 layoffs nationwide.
For The Record
Los Angeles Times Thursday, August 30, 2007 Home Edition Main News Part Page Metro Desk 1 inches; 40 words Type of Material: Correction
Bank of America investment: An article in the Business section on Aug. 23 about Bank of America Corp.'s purchase of $2 billion in Countrywide Financial Corp. preferred stock said the stock paid a dividend of 7.5%. The dividend is 7.25%.
Bank of America, which has the largest retail banking operation in the country, for some time has wanted to expand its mortgage business and has been seen as interested in acquiring all of Calabasas-based Countrywide. Wednesday's deal puts BofA, based in Charlotte, N.C., in a strong position to accomplish both goals.
The transaction, which was announced after the stock market closed, also gives BofA a chunk of the country's largest mortgage lender at what some might consider a bargain price.
For its $2 billion, Bank of America received preferred stock that pays a 7.5% annual dividend and can be converted into Countrywide common stock at $18 a share. If the stock is converted, BofA would own 16% of the mortgage company.
Countrywide's stock soared 21% on the news to $26.30 a share in after-hours trading after finishing the regular market session at $21.82, up 3 cents for the day. The shares ended 2006 at $41.93.
BofA, the sixth-largest U.S. home lender in 2006, recognizes that "once the dust settles the survivors [in the mortgage industry] will have much less competition and will thrive," said John Buckingham, head of Al Frank Asset Management in Laguna Beach and a Countrywide shareholder. "It looks like BofA got a very nice deal."
Angelo R. Mozilo, chairman and chief executive of Countrywide, said in a statement that the deal positioned the company for "future growth and success" with help from BofA.
His counterpart at Bank of America, Kenneth D. Lewis, said the deal recognized Countrywide's importance in financing home purchases.
"We hope this investment will be a step toward a return to a more normal liquidity in the mortgage markets," he said.
Countrywide has been badly squeezed by the credit crunch ravaging the mortgage industry, as Wall Street lenders have cut off funding and investors around the world who once eagerly gobbled up mortgage-backed bonds have turned up their noses at anything but securities issued by government-sponsored mortgage buyers Fannie Mae and Freddie Mac.
Countrywide had been reeling since reporting Aug. 9 that credit-market disruptions could hurt its financial condition.
