Bank of America has invested $2bn in Countrywide Financial Corp, to shore up the finances at the largest U.S. mortgage lender, which has hard hit by the subprime mortgage crises.
Under the terms of the deal, bank will buy 7.25% of non-voting preferred stock, which can be converted into Countrywide common stock at $18 per share. Bank’s decisions came six days after Countrywide stunned investors by tapping an entire $11.5bn credit line because it was having difficulty selling short-term debt, which raised apprehension over its future.
In January, before the mortgage crisis surfaced, Bank of America was the subject of speculation it might enter a joint venture with Countrywide, but later all speculations didn’t materialized. Bank’s move is definitely in favor of investors and took us near to the prior speculation, but in the middle of market volatility the impulsion behind the $2 billion investment and the bank’s longer-term goals were not immediately clear as market does not allows us to speculate the any type of joint venture with any mortgage lender firm.
After the bank’s intervention Countrywide’s market value soared up by 19% to $12.6 billion. In an hour trading largest US mortgage lender’s share mounts $25.91, whereas Bank of America’s shares rose 95 cents to $52.60.
Via: USA-Today
