Shares in Countrywide Financial Corp. dropped more than 6 percent Wednesday after Merrill Lynch & Co. downgraded the stock to a "sell," raising concern that the lending giant might need to seek bankruptcy protection.

"If liquidations occur in a weak market, then it is possible for CFC to go bankrupt," said Merrill Lynch & Co. analyst Kenneth Bruce in a research report Wednesday.

Countrywide shares have lost nearly 50 percent so far this year as concern mounts regarding the company's ability to continue to fund mortgages.

This comes one day after the Calabasas-based lending giant reported that lending had increased in July, year-over year, but had slipped 14 percent since June. The lender also reported that foreclosures and delinquencies had increased.

Last month, Countrywide reported a 33 percent dip in second-quarter profit along with a 17 percent slide in revenue. However, the company quickly moved to reassure investors by announcing that it had access to more than $46 billion in cash, credit lines and other investments saying that if it had to ride out a slide it had the resources to do so.

The lender also bought five retail branches and a "significant" portion of loan origination business from Atlanta-based HomeBanc Mortgage after the troubled lender said it was exiting the lending business. No price was given for the purchase but Countrywide said it would not pay a premium on the assets.

Shares in Countrywide were down $1.48, or 6.1 percent to $22.98, hitting a new 52-week low during trading Wednesday.

For reprint and licensing requests for this article, CLICK HERE.