M&A: Bank of America invests in subprime lender

Bank of America Corporation has announced it has made an investment in Countrywide Financial Corporation, the largest mortgage lender in the United States.

Bank of America will invest USD2 milliard in the form of a non-voting convertible preferred security yielding 7.25 percent annually. The security can be converted into common stock at USD18 per share.

"We believe that in the current turmoil the stock market has been underestimating the value in Countrywide's operations and assets," said Kenneth D. Lewis, Bank of America chairman and chief executive officer. "This investment reflects our confidence in their business and recognises the importance of the company in providing home financing across the country. We hope this investment will be a step toward a return to more normal liquidity in the mortgage markets. Countrywide has a strong mortgage origination business and it services the mortgages of one in seven American households."

"Bank of America, with $1.5 [billion] in assets, has the largest retail banking franchise in the U.S. and is one of the most respected companies in the world," said Angelo R. Mozilo, chairman and chief executive officer of Countrywide. "Bank of America's investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success," added Mr. Mozilo. "This transaction benefits all of Countrywide's constituents, including investors, shareholders, mortgage customers, deposit holders, business partners and employees," concluded Mr. Mozilo.

"We believe that in the current turmoil the stock market has been underestimating the value in Countrywide's operations and assets," said Kenneth D. Lewis, Bank of America chairman and chief executive officer. "This investment reflects our confidence in their business and recognizss the importance of the company in providing home financing across the country. We hope this investment will be a step toward a return to a more normal liquidity in the mortgage markets. Countrywide has a strong mortgage origination business and it services the mortgages of one in seven American households."

While the amount is a small sum for BofA, it provides a measure of confidence-building support for the market, and will shore up Countrywide's increasingly precarious cash position.