Shares in home lender fall 14 percent
Shares of Countrywide Financial Corp., the largest U.S. home lender, dropped 14 percent on concern a probe by the Federal Bureau of Investigation into possible securities fraud might derail Bank of America Corp.'s takeover.
Countrywide declined 71 cents to $4.36 Monday in New York Stock Exchange composite trading and changed hands for as little as $4.35, the lowest for the Calabasas, Calif.-based company's stock since Jan. 22. The last time the shares closed lower was in April 1995.
The FBI is scrutinizing whether Countrywide officials misrepresented the company's financial position and quality of its mortgage loans in regulatory filings, said a person with knowledge of the probe on March 8. Bank of America, which offered $4 billion in stock for Countrywide in January, still plans to proceed with the acquisition.
Edward Jones & Co. downgraded the stock to "sell" from "hold" Monday. The FBI investigation "may give Bank of America reason to request the previous deal be restructured in the bank's favor or walk away from the deal completely," Edward Jones analyst Patrick Schumann wrote in a report today.
"The transaction remains on track," Bank of America spokesman Scott Silvestri said Monday.
Countrywide shares are trading almost a third lower than the $6.33 closing price on Jan. 11, when Bank of America announced it would buy the mortgage lender.
"The only reason the stock isn't trading lower is the perception of heavy regulator support or coercion on this deal," said Brian Horey, a general partner of Aurelian Management LP. "At some point, however, BofA has to answer to its shareholders and justify its embrace of a very troubled portfolio. I don't think the deal closes without a more explicit bailout of Countrywide by the government."
Bank of America may slow its acquisition because of concerns about what could be unearthed in any investigation, said Ron Geffner, a former U.S. Securities and Exchange Commission lawyer now at Sadis & Goldberg LLC in New York.
The legal threat "could also limit the amount of information that could be shared with Bank of America," said Geffner, whose clients include more than 100 hedge funds.