Cut off from most of its traditional sources of funding, Countrywide Financial Corp.’s banking arm has been attracting money by offering rates on short-term certificates of deposit that are among the highest in the nation. In fact, the rates are sometimes double those of large retail banks.

Those rates may come down if the buyout of Countrywide by Bank of America Corp. goes through. That would bring some relief to local banks that compete with Countrywide for deposits.

“Once they become part of the Bank of America umbrella, they might need to pay a bit of a premium, but not too much,” said Frederick Cannon, managing director of Keefe, Bruyette & Woods in San Francisco.

Countrywide Bank last Thursday was offering an annual percentage yield of 5.1 percent for 3-month and 6-month CDs of $10,000. Countrywide shows up at the top or near the top of Bankrate.com’s list of rates.

By comparison, Bank of America’s best rate in California was 4 percent, although it was for four months and only $5,000. Wells Fargo was offering 2.4 percent for a $10,000 CD.

According to a spokesman at Countrywide, the bank is able to offer high rates because of its low overhead costs. Since Countrywide is not a full-service bank, it can pass on the savings to customers.

“We’ve been paying above-average rates since 2001,” said Pierre Habis, managing director at Countrywide Bank, which is a unit of the financially whacked Calabasas-based home mortgage company. “We’ve been able to do that solely on the basis of keeping a low-cost model.”

But some analysts regard the high rates as a desperate measure to attract sufficient deposits needed to fund Countrywide’s core business as the nation’s largest underwriter of mortgage loans.

“Countrywide is essentially shut out of the public debt markets as a source of funding, securitization has declined considerably and generating additional deposits within its bank has been the best alternative for a funding source,” said Patrick Schumann, a financial services analysts with Edward D. Jones & Co. in St. Louis.

“Because the environment for deposits is fierce, Countrywide has had to pay above-average rates to secure that funding,” Schumann added.

The exceptionally high CD rates at Countrywide could have an impact on the profitability of other banks by forcing them to jack up rates to compete, said Wade Francis, president of Unicon Financial Services, a bank consulting firm in Long Beach.

“Countrywide is paying extremely high rates to meet their liquidity needs, and with the Federal Reserve lowering interest rates (last week), there may be a squeeze on the margin of other banks,” Francis said.

The pending buyout of Countrywide by Bank of America presumably would put downward pressure on those rates because Bank of America could meet Countrywide’s funding needs. Furthermore, Bank of America wouldn’t want the expense of paying those high rates.

No relief?

However, several pointed out that any competing bankers looking for relief may not want to count chickens just yet. For one thing, the buyout would not occur until late this year. For another, the buyout may not even happen at all, at least not as announced earlier this month. At least the stock market is skeptical.

“Right now the share price (of Countrywide) is 25 percent lower than the purchase price” (announced by Bank of America), Francis said. “Normally, if the market feels the deal is truly going to happen, then most of the premium is squeezed out of the price.”

Even if the buyout goes through and Countrywide lowers its rates, there are other struggling lenders willing to bid up rates.

PFF Bank & Trust last week offered an annual yield of 4.75 percent for five-month CDs with a minimum balance of $1,000, while IndyMac Bank was paying a 5 percent annual yield for a seven-month CD with a $5,000 minimum. PFF recently announced large loan losses, while IndyMac plans to reduce its work force by 24 percent.

An executive at PFF in Rancho Cucamonga denied that Countrywide was having an effect on its rates.

“We have not been and are usually not influenced by extreme offerings,” said David Sweet, senior vice president and director of marketing with PFF Bank & Trust. “Competitiveness is a factor, but not at the extreme end of the rate scale.”