Countrywide reported in buyout talks with big bank
Analysts: Bank of America takeover would be seen as curbing market disruption.
WASHINGTON - A buyout of hobbled mortgage lender Countrywide Financial Corp. likely would be approved by regulators, analysts say, because otherwise the company could file for bankruptcy, further disrupting the market for home loans.
Bank of America Corp. is in talks to acquire Countrywide, the Wall Street Journal and the New York Times reported online yesterday, citing unidentified people familiar with the deal. The transaction would put the country's largest mortgage lender - which has experienced a surge in home-loan defaults and has seen its share price plummet - in the hands of the largest U.S. bank by market capitalization.
A Bank of America-led buyout is "the one and only hope" that Countrywide has to avoid bankruptcy, said Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co. Egan-Jones warned this week that Countrywide could falter unless it received an infusion of $4 billion in capital within the next two weeks.
"I cannot imagine that the regulators want Countrywide to go under," said Bert Ely, a banking consultant in Alexandria, Va. "I think they're actually quite nervous about that."
A combination of Bank of America and Countrywide would require approval from the Federal Reserve, and possibly other agencies.
Federal law bars banks from making acquisitions that would increase a bank's market share to 10 percent of U.S. deposits, and Bank of America is nearing that point at 9.88 percent. However, experts disagreed about whether deposits held by Countrywide's federally regulated thrift, Countrywide Bank, would count toward that limit.
In addition, banking experts say Bank of America could easily lower the total amount of money held in deposits by lowering interest rates and losing deposits to competitors.
It was not clear how quickly a deal might be struck for Countrywide, which has been roiled this week by rumors that a bankruptcy filing was imminent. The Wall Street Journal reported that negotiations between the two companies could fall apart.
Bank of America, which took a 16 percent stake in Countrywide over the summer, told the Associated Press that it does not comment on market rumors or market speculation. Countrywide did not immediately return calls or e-mails seeking comment.
Countrywide shares climbed $2.63, or 51.37 percent, to close at $7.75 yesterday, while Bank of America shares rose 56 cents, or 1.45 percent, to $39.30.