News as the Market Closes

The big news as the market closes is just a rumor, but an eye-opening one on the face of it.

The Financial Times is reporting that BofA and Countrywide may be in talks regarding an "alliance". In what would be a groundbreaking deal for the industry and these two companies, Countrywide shareholders have applauded any discussion, sending the mortgage lender's stock up over 10%.

The article is quick to point out that a deal could be a joint venture where Countrywide provides home mortgage lending services through Bank of America's vast branch network.

Here is the article from FT pasted if you don't have an ft.com password.

CNBC is saying that this would be a $26 billion deal and would be one of the ten largest financial deals ever. As promised here is the FT article.


BofA and Countrywide in alliance talks
By Ben White and James Politi in New York
Published: January 26 2007 19:36 Last updated: January 26 2007 19:36
Bank of America and Countrywide Financial have held discussions about an alliance that would create the biggest mortgage lending group in the US, people close to the matter said.
The talks are said to be at an early stage and may not lead to a deal. However, if they proceed, the talks could lead to an acquisition of Countrywide by BofA , which is eager to expand its mortgage lending business to match its breadth in credit cards. Such an acquisition would probably cost BofA, the second largest US bank, around $30bn, analysts said.

The talks could also lead to a joint venture between the two companies, under which BofA would use is vast branch network to help sell home mortgages originated by Countrywide. Countrywide would in turn have the support of BofA’s far larger balance sheet to fund its lending.

BofA said it does not comment on market rumour or speculation. Countrywide did not respond to a request for comment.
Banking analysts said a deal could make sense for both sides. BofA would dramatically expand its ability to serve consumers while Countrywide would get the financial muscle to withstand the current slowdown in the mortgage business.
“This would cement Bank of America’s lead as the dominant retail bank in the US,” said Gerard Cassidy, banking analyst at RBC Capital Markets. Mr Cassidy added that even if BofA were to buy Countrywide outright it would not be in violation of the US law forbidding banks from having over 10 per cent of consumer deposits following an acquisition.
Countrywide has a consumer bank but only about $56bn in deposits, according to Mr Cassidy. BofA currently has about 9 per cent of US consumer deposits and could acquire up to $70bn more without violating the cap. Even if an acquisition did present regulatory issues, BofA could divest Countrywide’s consumer deposits while keeping the mortgage origination business.
Based outside Los Angeles, Countrywide was founded by Angelo Mozilo, the current chief executive, in 1969, and gradually grew to become one of the top residential mortgage lending banks in the US.
Over the past year, it has experienced strong fluctuations in valuation, with its share price rising, falling, and rising again by some 20 per cent in the latest upward move. In morning trading yesterday, Countrywide shares were down 0.4 per cent to $40.14, giving it a market capitalisation of $25bn.
An alliance between BofA and Countrywide would echo last year’s $26bn takeover of Oakland-based Golden West Financial, another large mortgage lender, by Wachovia.
Countrywide is expected to report fourth-quarter results next week. In the first nine months of 2006, revenues rose 17 per cent to $8.7bn while net earnings were 9 per cent higher at $2.1bn.
According to Mortgage Daily, Countrywide was the top provider of US home loans in the fourth quarter of 2006, ahead of Wells Fargo, JPMorgan Chase and Washington Mutual.
Copyright The Financial Times Limited 2007