Countrywide for Sale
January 22, 2008
In a surprising move, Bank of America recently announced its plans to buy the beleaguered mortgage lender Countrywide Financial Corporation. The deal could end up costing BofA as much as four billion dollars and might well prevent the collapse of Countrywide as a business entitiy.
Bank of America has made other major buys and has spent over $100 billion dollars as it has made its climb to become the second largest bank in the US. Kenneth Lewis is the current CEO at Bank of America.
It is hoped that the buyout will provide Countrywide with needed capital to fend off its losses due to the sub prime mortgage defaults it is encountering. In addition to loan defaults, Countrywide is also facing several lawsuits into its lending practices. It is also expected to be under regulatory scrutiny in the coming months. The market of Countrywide lost $26 during the last year.
Market experts see the buyout as a sign of relief in an otherwise very unstable market.
Shareholders of Countrywide stock, on the other hand, are not so happy. The values of their shares have dropped substantially over the last few months and the news of the buyout is expected to depress share prices even more. Countrywide shareholders would receive 0.1822 of a Bank of America share in exchange for each of their shares once the deal is complete.