Bank of America to Buy Ailing Countrywide for $4B in Stock, Becomes Biggest U.S. Mortgage Lender
- Jan 11, 2008
It’s unclear what will happen to Countrywide Financial Corp.’s real estate properties around the United States now that Bank of America has agreed to buy the troubled company for $4 billion in stock. What is clear is that the deal announced this morning catapults Bank of America into the top spot as America’s leading mortgage lender and loan servicer.“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Bank of American chairman & CEO Kenneth Lewis said in a statement. “Countrywide customers will gain access to a broad set of consumer products including credit cards and deposit services. Home ownership is a fundamental pillar of the U.S. economy and over time it will be a key area of growth for Bank of America.”The deal is expected to close in the third quarter and Countrywide chairman & CEO Angelo Mozilo is expected to stay on until the closing. Lewis said the two would talk next week.The release said Bank of America plans to operate Countrywide separately under the Countrywide brand after the closing and didn’t expect integration any time before 2009.“We believe this is the right decision for our shareholders customers, and employees,” Mozilo said in the joint statement. “We have had a long and positive relationship with Bank of America and our servicing and origination businesses, as well as other aspects of our operations, will be substantially enhanced as a result of this transaction.”The rescue comes about five months after Bank of America infused $2 billion into Countrywide in August. Since then the housing market has slumped even more and the global credit crunch has continued to tighten. In recent days, Countrywide’s stock has hit record lows as rumors of bankruptcy swirled.The deal would give Countrywide shareholders 0.1822 shares of Bank of America stock in exchange for each share of Countrywide. The shares were valued at $7.16 each, lower than the closing price Thursday of $7.75. The acquisition will be neutral to Bank of America earnings per share in 2008 and raise earnings per share in 2009, excluding buyout and restructuring costs. Bank of America expects $670 million in after-tax cost savings, or 11 percent of the expense base of the two companies’ mortgage operations. It also expects to take a $1.2 billion restructuring cost.David Ellis of CNNMoney.com reports this afternoon that Lewis and other officials declined to talk about possible job cuts during a conference call this morning, but did say that many senior Countrywide executives would stay.Calabasas, Calif.-based Countrywide operates more than 1,000 field offices and has a sales force of nearly 15,000, according to today’s press release. For Bank of America that represents an extensive retail, wholesale and distribution network. The company still has a large retail banking presence in California. In November, Countrywide Bank announced it was planning to expand its financial center network in key growth markets across the United States and had aimed to have nearly 200 in 39 metropolitan markets. In a Nov. 7 press release, Countrywide Bank stated it had 165 financial centers in 33 markets, up from 104 locations at the end of the second quarter of 2007. New locations cited in the release included four in California as well as centers in Boulder, Colo.; East Orlando, Fla.; Plainfield, Ill.; Burlington, Mass.; Yorktown Heights, N.Y.; and Sugarland, Texas. It planned to expand specifically in California, Arizona, Texas and Florida. A Jan. 9 press release highlighting operational data for the month of December, 2007, noted that the bank had continued to make progress with the openings of financial centers and had 194 by year’s end.Bank of America has more than 6,100 retail banking centers and more than 17,000 ATMs. The firm noted it has more than 23 million active online banking users.