Bank of America's $4-billion acquisition of mortgage lender Countrywide cleared

06 June 2008

Bank of America Corp., the biggest US consumer bank, won Federal Reserve approval to acquire Countrywide Financial Corp., the nation's largest mortgage lender, thus clearing the way for the $4 billion acquisition which effectively gives the acquirer one-fourth of the mortgage market.

In a statement, the federal regulator said it considered many comments for and against the company buyout and ''has considered carefully the financial factors of the proposal.''

Charlotte-based Bank of America, which announced its stock-swap buyout of the Calabasas, California-based mortgage lender in January, has faced much criticism for Countrywide's large exposure to sub-prime home loans that were offered to borrowers despite their shaky credit. (See: Bank of America agrees to purchase Countrywide Financial Corp)

Countrywide lost about $1.6 billion in the last six months of 2007 at the peak of the sub-prime mortgage crisis, and the company faces numerous investigations and lawsuits related to its lending practices. Post-acquisition, Bank of America has assured tightening of control measures at the distressed company.

Since the news became public in January, Bank of America has lost close to 17 per cent of its market capitalization on fears of increasing losses and write-downs, which some analysts predict could run into $10 to $12 billion.

"This transaction represents a rare opportunity for Bank of America to significantly gain market share in the mortgage business, allowing it to expand in a cornerstone financial product," Bank of America chairman and CEO Ken Lewis said in a statement commenting on the Fed decision.