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| Bank of America buys Countrywide |
| US banking giant, Bank of America, is to take over the country's biggest mortgage lender, Countrywide Financial, in a $4bn (£2.04bn) deal
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| UNITED STATES OF AMERICA
, 11-January-2008
9:28:23 AM |
| Analysts said the deal had thrown a lifeline to Countrywide, which had been rumoured to be on the verge of applying for bankruptcy protection.
The firm had been hit by the recent severe downturn in the housing market.
Countrywide saw a 44% drop in home loan volumes in December and its highest level of foreclosures since 2002
Nancy Bush, banking analyst at Nab Research said: "This takes out a major point of uncertainty in the industry.
"It's certainly good for financial stocks overall. It's a tremendous beneficial deal for the whole financial services industry."
But Rick Meckler, president of investment firm Libertyview Capital Management, said: "The negative side is that Bank of America needed to step in, and there's still a lot of value lost by Countrywide shareholders.
"(Also) it's naive to think we're at the end of the process in terms of recognising losses from the mortgage crisis."
Key issues
In August, Bank of America had invested $2bn in Countrywide, which was a key participant in the sub-prime mortgage market.
Sub-prime lenders gave loans to those with poor credit records or unpredictable incomes.
During the housing boom, a huge number of people took out mortgages to take advantage of lower borrowing costs.
But with US interest rates climbing over the past two years, many borrowers have been unable to repay their monthly loans, prompting huge defaults and repossessions.
Under the terms of the deal, Countrywide shareholders will receive 0.1822 of a Bank of America share for each Countrywide share.
The deal values Countrywide at $7.16 a share, down 7.6% on Thursday's closing price.
The bank says it expects to make after-tax savings of $670m from the combined company by 2011.
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