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BoA, Countrywide Deal

BoA, Countrywide DealFT reports possible alliance, acquisition

January 29, 2007

By JERRY DeMUTH

Speculation that Bank of America is negotiating an acquisition or alliance with Countrywide Financial Corp. could be one reason why Countrywide’s chief postponed his retirement last year.

The two financial giants have held discussions about an alliance, the Financial Times reported Friday. Citing people close to the matter, the Times said the talks could lead to an acquisition of Countrywide by BoA.

Last October, Countrywide announced that it had reached an agreement with Angelo R. Mozilo to continue as chairman and CEO through December 31, 2009.

Under a 10-year contract he signed in June 2001, Mozilo was to retire as CEO in five years, i.e. in 2006, and then serve as a consultant for another five years. And a feature on Mozilo, then 66, that appeared in The New York Times last October 16, reported that he “expects to retire at 68.”

“If there is to be an acquisition or a merger or an alliance with Bank of America, he would want to still be CEO when a deal is completed,” an industry official told MortgageDaily.com.

Countrywide also instituted a share repurchase program of up to $2.5 billion last fall, starting with at least $1 billion of its common stock in the fourth quarter. Stockholders’ equity in Countrywide amounted to $12.8 billion last March 17, according to the company’s Fortune 500 2006 listing.

And early last week, BoA’s board of directors authorized the spending of $14 billion to buy back as many as 200 million shares during the next 12 to 18 months.

Any relationship with Countrywide, which last year reported $462.5 billion in residential originations — more than any other U.S. lender, would strengthen both BoA’s mortgage presence and branch network.

But more importantly, a deal would give the Charlotte, N.C.-based bank a wide range of mortgage products and a large, and very profitable, mortgage servicing operation.

The combination of the two companies’ residential servicing portfolios — at more than $1.6 trillion — would create the largest U.S. servicer, surpassing the nearly $1.4 trillion servicing portfolio reported by Wells Fargo & Co. as of Dec. 31.

Countrywide would benefit from BoA’s financial strengths. It currently relies on its own bank, Countrywide Bank N.A., for much of its mortgage funding.

Neither company would comment on the reports of discussions between the two.

“Countrywide has a long-standing policy against commenting on market rumors,” a Countrywide spokesman told MortgageDaily.com in an e-mail message.

Last October, Mozilo, during a media discussion of Countrywide’s third quarter earnings, said he believed there were some consolidation opportunities “out there,” especially in the capital markets area. But at the same time he said that Countrywide never does “anything large.”

An actual acquisition of Countrywide could cost BoA upwards of $30 billion, according to estimates by market analysts. Countrywide had a market value of $22.027 billion on March 17, 2006, according to its 122nd place ranking on Fortune magazine’s Fortune 500 for 2006. Its previous rank was 150.

Any relationship with Countrywide could give BoA, which has been growing its range of products and services, more than Countrywide’s mortgage origination and servicing business, Countrywide Home Loans.

In 2004, BoA acquired FleetBoston Financial Corp. for $48 billion. And last year it purchased the huge MBNA credit card business for $34 billion. That acquisition made BoA, the nation’s largest credit card issuer and helped drive a growth in its card income in last year’s fourth quarter, in which its profits surged 47%

An acquisition or merger would even give BoA another credit card, the Countrywide Rewards Platinum Visa Card, which is issued through Countrywide Bank N.A., which also provides Countrywide Home Loans with a low-cost source of funds, liquidity and portfolio lending capabilities, partly through its investments in mortgage loans. Last year, earnings at the bank, which had $83 billion in assets as of last Dec. 31, increased 43%.

Countrywide’s operations include more than its loan origination, securitization and still-growing loan servicing operations and that bank with its credit card business. It is a diversified financial services provider that also has an insurance segment, Balboa Insurance Group, whose companies provide property, life and casualty insurance, and Balboa Reinsurance Company, a captive mortgage reinsurance company. In addition, its Capital Markets Group engages in securities trading, trading that totaled $3.8 trillion last year.

And through its affiliate, LandSafe Credit Inc., Countrywide Home Loans offers consumers Countrywide Credit Guard, a credit monitoring service.

When Countrywide released its most recent operational data on Jan. 12, Mozilo, who co-founded the company in early 1969 when he was 29, pointed out how, while mortgage loan funding for 2006 fell but at less than half of expectations for the entire mortgage industry, “strong operational metrics were achieved in all our other business segments.”


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