Bank of America could get Countrywide for bargain
Bank of America, the nation's largest retail bank, is negotiating to buy Countrywide Financial, the staggering mortgage giant, according to a person with direct knowledge of the talks.
The deal would inject desperately needed capital into Countrywide's business and give Bank of America a premier mortgage distribution and servicing business at a bargain-basement price.
Countrywide, which has become synonymous with the excesses of the subprime lending that fueled the real estate bubble, had seen its market value sink nearly 90 percent since January last year, to $3 billion.
Rumors that Bank of America might buy Countrywide were sparked in August. That's when the Charlotte-based bank invested $2 billion in Countrywide, convertible to a 16 percent stake. Bank of America also gained first right of refusal if Countrywide decided to put itself up for sale.
Since then, Countrywide's loan defaults have skyrocketed. The lender has had to repeatedly deny analysts' suggestions that the company would have to seek bankruptcy protection.
"It's very logical that Bank of America would want to buy Countrywide at this price," said Bob Napoli, an analyst at Piper Jaffray.
The negotiations, first reported Thursday on The Wall Street Journal's Web site, were confirmed to USA TODAY by a person who wasn't authorized to speak publicly because the details are still being worked out.
Calabasas, Calif.-based Countrywide warned Wednesday that more than 7 percent of its loans were delinquent in December. But Napoli said, "The amount of risky loans Countywide has on its balance sheet is not that material to somebody the size of Bank of America."
And with Countrywide's $1.5 trillion portfolio of loans serviced, Bank of America would become the largest mortgage lender almost overnight. Already, it's the largest retail mortgage lender, according to Inside Mortgage Finance, with $116 billion in mortgage originations in the first nine months of last year.
Combining operations "will make Bank of America much more efficient," said Bart Narter, senior analyst at Celent, a financial research firm.
"The downside is both companies' mortgage businesses are losing money," he said. "Bank of America is buying losses, so in the short term their bottom line is going to suffer. But in the long run, it's a good thing for Bank of America. They are getting really good technology, but they've got to get through some really tough times" in real estate.
The deal would inject desperately needed capital into Countrywide's business and give Bank of America a premier mortgage distribution and servicing business at a bargain-basement price.
Countrywide, which has become synonymous with the excesses of the subprime lending that fueled the real estate bubble, had seen its market value sink nearly 90 percent since January last year, to $3 billion.
Rumors that Bank of America might buy Countrywide were sparked in August. That's when the Charlotte-based bank invested $2 billion in Countrywide, convertible to a 16 percent stake. Bank of America also gained first right of refusal if Countrywide decided to put itself up for sale.
Since then, Countrywide's loan defaults have skyrocketed. The lender has had to repeatedly deny analysts' suggestions that the company would have to seek bankruptcy protection.
"It's very logical that Bank of America would want to buy Countrywide at this price," said Bob Napoli, an analyst at Piper Jaffray.
The negotiations, first reported Thursday on The Wall Street Journal's Web site, were confirmed to USA TODAY by a person who wasn't authorized to speak publicly because the details are still being worked out.
Calabasas, Calif.-based Countrywide warned Wednesday that more than 7 percent of its loans were delinquent in December. But Napoli said, "The amount of risky loans Countywide has on its balance sheet is not that material to somebody the size of Bank of America."
And with Countrywide's $1.5 trillion portfolio of loans serviced, Bank of America would become the largest mortgage lender almost overnight. Already, it's the largest retail mortgage lender, according to Inside Mortgage Finance, with $116 billion in mortgage originations in the first nine months of last year.
Combining operations "will make Bank of America much more efficient," said Bart Narter, senior analyst at Celent, a financial research firm.
"The downside is both companies' mortgage businesses are losing money," he said. "Bank of America is buying losses, so in the short term their bottom line is going to suffer. But in the long run, it's a good thing for Bank of America. They are getting really good technology, but they've got to get through some really tough times" in real estate.
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