Bank of America Corp.'s milestone agreement to buy ailing Countrywide Financial Corp. was viewed Friday as a crucial step toward mending the battered housing and financial markets.
Analysts said the $4.1-billion deal was an aggressive bet by Bank of America on the long-term prospects of the housing sector, which had been roiled by falling prices and rising foreclosures.
With mounting losses from loan defaults, Countrywide had increasingly been subject to speculation that it would be forced into bankruptcy. That could have dried up a major source of mortgages, further weakening home values.
Countrywide Financial sale: An article and an information box in Saturday's Section A about Bank of America Corp.'s planned acquisition of Countrywide Financial Corp. included references to both Bank of America and Citigroup Inc. as the nation's largest bank. Bank of America is the biggest measured by deposits and stock market value, and Citigroup is the biggest measured by assets.
"This deal allows us to check off one more box that says we are successfully working our way through the credit crunch," said Jane Caron, an economist at Dwight Asset Management, an investment firm in Burlington, Vt. "This is another one of those milestones that helps put a floor under the mortgage and financial markets."
At the same time, economists said, the acquisition would do little in the months ahead to help homeowners whose property values were falling, investors whose stocks were sliding or workers whose job security was waning.
That view was echoed on Wall Street, where the Dow Jones industrial average sank almost 250 points as investors focused on the latest batch of evidence pointing to softening consumer spending and a darkening economic outlook.
"There are very serious ongoing problems in the housing market," said Stuart Gabriel, director of the Richard S. Ziman Center for Real Estate at UCLA. "They're not going to go away as a consequence of this deal. Those problems could worsen in the short run as it appears the economy is sliding into a recession, if not already in one."
In unveiling plans to buy Calabasas-based Countrywide, Bank of America Chairman and Chief Executive Kenneth Lewis acknowledged "the issues within the housing and mortgage industries."
But Lewis said the chance to acquire Countrywide gave the bank a "unique opportunity" to fulfill its longtime goal to become the dominant player in the home loan business.
Founded in 1969, Countrywide became the nation's largest provider of home loans under Chairman and co-founder Angelo R. Mozilo. But in recent months, it had become the highest-profile example of the mortgage meltdown as rising defaults triggered mounting financial losses and eventually pushed its stock price below $5, from about $45 a year ago.
