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BoA Agrees to Acquire Countrywide

$4 billion deal expected to close in fourth quarter

January 11, 2008

By MortgageDaily.com staff


The largest U.S. mortgage lender just got bigger.

Bank of America Corp. has agreed to acquire Countrywide Financial Corp. -- the largest residential lender in the country based on third quarter origination data, BoA announced today. Both companies' boards of directors have approved the deal.

"The purchase will make Bank of America the nation's largest mortgage lender and loan servicer," BoA boasted. "Bank of America will benefit from Countrywide's broader mortgage capabilities, including its extensive retail, wholesale and correspondent distribution networks."

For all of last year, Calabasas, Calif.-based Countrywide, which reportedly operates 1,000 branches and employs nearly 15,000 loan officers, said it originated $408 billion, while BoA is on track to report 2007 production just under half of Countrywide's level.

But Countrywide's recent funding levels indicate its annual fundings may drop to under $300 billion, suggesting a combined unit that will originate between $450 billion and $500 billion a year.

Countrywide's residential servicing portfolio, reported at $1.476 trillion as of Dec. 31, added to Charlotte, N.C.-based BoA's $0.377 trillion servicing portfolio as of Sept. 30, will strengthen the top residential servicer standing of Countrywide.

The $4 billion acquisition will be all stock, with Countrywide shareholders getting 0.1822 BoA shares for each Countrywide share, according to today's statement. The deal, expected to close by September, represents about $7 a share for Countrywide shareholders -- a recovery from the less than $5 a share the stock was trading at yesterday before word of the deal leaked out.

But one year ago, when the two were in talks about a possible merger, according to the Financial Times, Countrywide shares were trading at $45. While a deal never materialized then, BoA subsequently made a $2 billion investment in Countrywide.

The Countrywide brand is expected to be operated separately at least until 2009. No subprime originations are planned, and the statement outlined a number of initiatives the companies are pursuing to prevent foreclosures and improve lending ethics industrywide.

BoA expects the combination to save the merged entities $670 million in expenses through 2011.

Following the announcement, Fitch Ratings placed Countrywide's ratings on Rating Watch Positive, affirmed BoA ratings and maintained its negative outlook for BoA. The ratings agency said BoA will be challenged to resolve credit issues related to Countrywide's stressed mortgage lending operations and significant holdings of subprime, Alt-A and high value loan to value home equity loans.

"We are aware of the issues within the housing and mortgage industries," BoA Chairman and Chief Executive Officer said in the release. "The transaction reflects those challenges. Mortgages will continue to be an important relationship product."


Related:

BoA Negotiating Countrywide Acquisition
Bank of America Corp. has emerged as a possible White Knight for ailing Countrywide Financial Corp. The deal would represent quite a bargain for BoA, which was rumored to be considering the same acquisition one year ago when shares of the mortgage banker were priced at more than five times their current level.

The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.



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