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Bank of America invests $2 billion in Countrywide
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More from BusinessCountrywide Financial Corp. said Wednesday that Bank of America Corp. has made an equity investment of $2 billion in the company, a deal that comes as the nation's largest mortgage lender tries to weather a credit crunch that's rocked Wall Street and the mortgage industry.
Officials from both companies said the investment conveys confidence in the Calabasas-based mortgage lender. Countrywide CEO Angelo Mozilo said in a statement that the deal strengthens the company's balance sheet for future growth.
Investor confidence has been shaken since Countrywide announced last week it was borrowing $11.5 billion to keep its mortgage business going and then added that it eliminated 500 positions in two of its lending units.
The company, which provides a range of financial services, made a point earlier this week to reassure its banking customers that its mortgage lending troubles would not affect the company's banks.
"We believe that in the current turmoil the stock market has been underestimating the value in Countrywide's operations and assets," Kenneth D. Lewis, Bank of America's chief executive officer, said in a statement Wednesday. "This investment reflects our confidence in their business and recognizes 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."
Bank of America made its $2 billion strategic equity investment through purchasing non-voting convertible preferred stock yielding 7.25 percent interest. The shares can be changed over into common stock at $18 per share.
The deal was completed Wednesday. The announcement came after the market closed.
Countrywide's stock closed at $21.82 Wednesday, but jumped almost 18 percent to $25.70 in after-hours trading. Shares of Bank of America, which rose 35 cents to $51.65 Wednesday, gained an additional 1.8 percent to $52.59 in after-hours trading.
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