Bank of America Corp. on Friday said it will buy Countrywide Financial Corp. for about $4 billion in an all-stock deal that will provide a lucrative exit for the troubled mortgage lender’s longtime chief executive, if not shareholders.
Charlotte, N.C.-based Bank of America will acquire Countrywide for about $7.16 a share in stock, the nation’s largest bank said in a release. That’s 7.6 percent below Countrywide’s closing price on Thursday, prompting a 17 percent drop in share price earlier this morning. Shares were off 15 percent to $6.58 in midday trading.
BofA shares were down only 1 percent to $38.85, despite analyst worries that bank’s effort to salvage its $2 billion investment in Countrywide last fall — when shares were trading at $18 — might falter.
“I hope Bank of America isn’t throwing good money after bad,” Eric Schopf, a fund manager at Baltimore-based Hardesty Capital Management LLC, told Bloomberg TV. “They struck a deal that wasn’t very attractive. Hopefully they can get it right the second time around.”
In the third quarter, Countrywide took $2.7 billion in credit-related write-downs and losses. As the worst housing slump in more than two decades decimated the Chatsworth-based lender and prompted an onslaught of litigation, there was increasing speculation Countrywide might seek Chapter 11 protection. The company in the past had denied such an action was being contemplated.
BofA will need to write down the value of the Countrywide’s $209 billion in assets by as much as 10 percent, or $20 billion, because of lower housing values, Sean Egan, managing director of credit rating company Egan-Jones Rating Co., told Bloomberg.
Even so, if BofA is right in banking on a turnaround in the mortgage market it could be getting a bargain in buying the lender now. Countrywide, which has about 9 million borrowers and fees from servicing $1.5 trillion of mortgages, is now is trading at just 20 percent of what officials said at the end of third quarter was its book value (total net assets minus intangible assets and liabilities).
For Angelo Mozilo, the buy-out would top a colorful and often controversial four decades at Countrywide. A Countrywide founder in the 1960s and CEO since 1998, Mozilo put off retirement to stay at the helm as the subprime lending collapse reversed his company’s rapid growth earlier in the decade.
Mozilo last year cut his base pay by 35 percent from $2.9 million in 2006, but was criticized for continuing to periodically cash out options through his prearranged 10b5-1 trading plan. He sold about $414 million of Countrywide shares from 2004 to 2007 — around $140 million of that in the last two years alone.
He also could walk away with as much as $115 million in severance-related pay, according to his employment contract. He was the second highest compensated public company executive in Los Angeles County in 2006 at $48.1 million, according to the Businesses Journal’s annual survey.
