BofA bolstering Countrywide with $2 billion injection

CALABASAS, Calif. (Aug 22, 2007) - Bank of America agreed Wednesday to pour $2 billion into Countrywide Financial Corp. to help bail out the nation's largest mortgage lender amid the subprime-loan crisis.

The investment by the nation's largest retail banker, which has $1.5 trillion in assets, came a week after Countrywide tapped an $11.5 billion line of credit to continue funding its operations. It could lead to a takeover by Bank of America at some point.

Countrywide said Charlotte, N.C.-based Bank of America will get convertible preferred stock that returns 7.25 percent annually. Bank of America's holdings can be converted into common stock at $18 per share, with restrictions on trading for 18 months after the conversion.

The funding was completed Wednesday and announced after the markets closed. Countrywide's shares, which have lost half their value this year, soared 20.53 percent, or $4.48, to $26.30. They sank to a 52-week low of $15 on Aug. 16. But they are still under the 52-week high of $45.26 reached Jan. 26.

The investment came two days after the company said it was cutting 500 jobs from Full Spectrum Lending, its subprime unit, and reassured depositors in Countrywide Bank FSB that the institution was sound despite the credit crisis.

Countrywide Chairman and Chief Executive Officer Angelo Mozilo, in a statement, called Bank of America one of the most respected companies in the word.

"Bank of America's investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success," he said. "This transaction benefits all of Countrywide's constituents, including investors, shareholders, mortgage customers, deposit holders, business partners and employees."

Spokesman Rick Simon said Countrywide would not comment beyond the press release.

Confidence shown Bank of America Chairman and Chief Executive Officer Kenneth D. Lewis said in a statement his company believes that the current market turmoil has underestimated the value in Countrywide's operations and assets.

"This investment reflects our confidence in their business and recognizes the importance of the company in providing home financing across the country. We hope this investment will be a step toward a return to a more normal liquidity in the mortgage markets," he said.

He also noted the strength of Countrywide's home-loan origination business and the fact it services the mortgage in one of seven American households.

After Countrywide accessed the $11.5 billion credit line, Paul J. Miller, an analyst at Friedman, Billings, Ramsey & Co., said in a research report that Countrywide's survival depended on how long the mortgage crisis lasts and that bankruptcy was a possibility.

"We do believe there is a scenario in which the current liquidity crises lasts for longer than three months and CFC is forced into bankruptcy," he wrote at the time. "It will be ugly, but it can happen!"