Tuesday, January 29, 2008

Bank of America Affirms Plan to Acquire Countrywide

(Bloomberg) -- Bank of America Corp. said it's committed to buying Countrywide Financial Corp. and the bank doesn't need more capital after last week's preferred stock sale raised almost $13 billion.

``Everything is a `go' to complete this transaction,'' Bank of America Chief Executive Officer Kenneth Lewis said at an investor conference today, referring to Countrywide. The Calabasas, California-based mortgage company rose 6.1 percent today in New York Stock Exchange composite trading.

Chief Executive Officer Angelo Mozilo agreed Jan. 11 to sell Countrywide, the biggest U.S. mortgage lender, for about $4 billion in stock to Bank of America, the nation's second- biggest bank by assets. Investors have speculated the bid might be revised if Countrywide didn't fulfill Mozilo's October vow to restore profit by year-end.

``Buying Countrywide was a gutty move,'' said Donald Hodges of Hodges Capital Management in Dallas, which oversaw $1.1 billion including 39,000 Bank of America shares as of Sept. 30. ``The whole concern about housing and the economy has been greatly exaggerated.''

Countrywide posted a fourth-quarter net loss of $422 million, or 79 cents a share, compared with a profit of $621.6 million, or $1.01 a share, in the year-earlier period, the company said in a statement today.

The loss was more than twice the 28 cents predicted in a Bloomberg survey of analysts.

Due Diligence

Bank of America, based in Charlotte, North Carolina, added 74 cents, or 1.8 percent, to $41.94 in composite trading on the New York Stock Exchange. Countrywide rose 36 cents to $6.31.

Lewis called the loss ``consistent with our due diligence'' and less important than a ``significant improvement'' in Countrywide's mortgage business this month because of lower interest rates. The Federal Reserve on Jan. 22 lowered the target rate for overnight loans between banks by three-quarters of a percentage point.

``This was a clean-up quarter to get this company in shape for Bank of America,'' Dick Bove, managing director of Punk Ziegel & Co., said in a Bloomberg Television interview. ``Bank of America is asking them to look into every place they can find to take losses, so when they become Bank of America, we don't see similar impacts.''

The transaction is scheduled to be completed in the third quarter. The combination would make Bank of America the biggest U.S. mortgage lender, handling about one out of every four home loans. The bank ranked fifth last year, according to trade publication Inside Mortgage Finance.

More Capital

Bank of America could have raised 2 1/2 times as much as it sought in last week's share offerings, Lewis said at the New York investor conference today. The sale offered some of the highest yields in 15 years.

Bank of America sold $6 billion of perpetual preferred shares at a yield of 8 percent, according to data compiled by Bloomberg. The bank also completed a $6 billion sale of convertible preferred stock with a 7.25 percent yield, and added $900 million to meet investor demand, Bloomberg data show.

The bank is rebuilding capital following $24.3 billion of acquisitions. The company bought U.S. Trust Corp. and LaSalle Bank last year and agreed this month to buy Countrywide. Bank of America joins banks including Citigroup Inc. that have bolstered capital after the world's biggest financial companies reported $133 billion in asset writedowns and credit losses tied to last year's collapse of the U.S. subprime mortgage market.

Credit Costs

Credit costs may rise more than 20 percent this year, Lewis said today, calling the increase ``manageable.'' As much as 80 percent of the increase stems from credit cards, with the balance from small business loans and residential home builders, he said. Other than builders, ``our commercial portfolio is virtually pristine,'' he said.

In response to questions, Lewis expressed no interest in buying a stock brokerage or another Midwest bank to complement Chicago-based LaSalle.

``We don't need a 15,000- to 16,000-person sales force'' in securities, he said. Colorado is the only large growth market in the U.S. where the bank doesn't have branches, he said, ``and we don't have to be in Colorado.''

No comments: