Countrywide gets $2 billion capital boost from Bank of America
By Our Banking Bureau | 23 Aug 2007
Mumbai: Countrywide Financial Corp received a $2 billion fresh capital injection as Bank of America Corp bought convertible preferred stock of the biggest US mortgage lender.
Countrywide Financial Corp had bought most of the assets of another US mortgage lender HomeBanc Corp that filed for Chapter 11 bankruptcy protection after the sale and shut shop. (See: US mortgage lender HomeBanc files for bankruptcy)
Barely four days later, its own stocks began to slide on rumours of a possible bankruptcy. (See: Countrywide Financial stock slides on rumours of bankruptcy) Countrywide suffered growing defaults as rising interest rates made it harder for people to pay their mortgages. Several home loan providers have gone bust while many others are struggling with rising defaults, the refusal of investors to buy loans they make, and the unwillingness of banks to extend credit.
Calabasas, California-based Countrywide said Bank of America bought $2 billion worth of convertible preferred stock yielding 7.25 per cent. Each preferred share may be converted into Countrywide common stock at $18.
But the rising cost of credit took its toll on Lehman Brothers Holdings Inc., Accredited Home Lenders Holding Co., and HSBC Holdings PLC, as the subprime mortgage fallout spread.
Lehman, the biggest underwriter of US bonds backed by mortgages, became the first firm on Wall Street to shut its subprime-lending unit and said 1,200 employees will lose their jobs. Accredited, which was spurned by buy-out fund Lone Star this month, stopped making home loans. British bank HSBC, Europe's largest bank by market value, also closed a US mortgage unit.
Mortgage lenders are planning to fire 3,700 people as the slump that began in subprime mortgage bonds reached beyond mortgages to companies seeking money in the corporate debt markets.
Countrywide Financial Corp's shares rose 20 per cent, as investors hailed Bank of America's move to invest $2 billion in the troubled mortgage giant.
Countrywide's shares have been hammered this month as a broadening crisis in the mortgage business cut off the company's access to its usual sources of borrowing in the market. (See: Countrywide Financial stock slides on rumours of bankruptcy)
Countrywide had to tap an $11.5 billion loan facility from 40 banks last week to head off a run on its bank as some depositors withdrew their savings.
