The cost of protecting Countrywide Financial Corp. bonds from default fell for a second day to the lowest in a month on signs its takeover by Bank of America Corp. will be completed, Bloomberg reports.
Credit-default swaps tied to the bonds of Countrywide's home-loan unit dropped 65 basis points to 230 basis points, according to broker Phoenix Partners Group. The contracts, which decline as investor perceptions of credit quality improve, have plunged 165 basis points in the past two days. Calabasas, California-based Countrywide shares have jumped 17 percent the past two days.
Countrywide yesterday settled three shareholder lawsuits challenging the sale and Bank of America reversed its plan to keep Countrywide President David Sambol as head of the combined home lending operations, bolstering investor confidence about the takeover. Sambol, along with Chief Executive Officer Angelo Mozilo, has been under fire from U.S. officials including Senator Charles Schumer for lax lending standards.
The rally in Countrywide credit-default swaps brought it closer to where contracts on Bank of America trade, signaling that investors see the default risks of the two companies converging. The gap narrowed to 151 basis points from 331 on May 26, prices from Phoenix and market data provider CMA Datavision show.
That's the tightest since May 1, the day after Bank of America said in a regulatory filing that it may not guarantee $38.1 billion of Countrywide debt. Standard & Poor's cut Countrywide's rating below investment grade after the filing, and Countrywide credit-default swaps reached a two-month high of 398 basis points May 27.
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