By David Mildenberg
Jan. 10 (Bloomberg) -- Bank of America Corp. is in talks to acquire Countrywide Financial Corp., the biggest U.S. mortgage lender, a person with knowledge of the discussions said. Countrywide rose more than 50 percent.
A sale may salvage Bank of America's $2 billion investment last August in Calabasas, California-based Countrywide. The bank, based in Charlotte, North Carolina, owns preferred shares that are convertible at $18 into Countrywide common stock and pay a 7.25 percent dividend. Details of a transaction were being discussed by the two companies, said the person, who declined to be identified because the talks aren't public.
Countrywide Chief Executive Officer Angelo Mozilo, 69, has failed to quell concern that the company he founded may face bankruptcy. The lender, now valued at $4.48 billion after falling 82 percent in 12 months, posted its first loss in 25 years during the third quarter. Mozilo, who has called the housing slump the worst since the Great Depression, had said he preferred to keep Countrywide independent.
``Angelo has lost control of the company because it would seem the regulators and auditors are driving the equation at this point,'' said Tom Atteberry, who helps manage $2 billion at First Pacific Advisors in Los Angeles. ``Angelo isn't going to have much of a say at this point.''
Countrywide gained $2.63, or 51 percent, to $7.75 in 4 p.m. New York Stock Exchange composite trading. IndyMac Bancorp Inc., the second-biggest independent home lender, advanced 23 percent and Washington Mutual Inc., the biggest U.S. savings and loan, added 15 percent.
``Resolving the Countrywide mess is not a small thing,'' Manuel Ramirez, senior vice president of equity research at KBW Inc. in San Francisco, said in an interview. ``The sector has taken a beating in recent times and I suspect the worst of the declines are behind us.''
Trading in options to buy Countrywide stock jumped on Jan. 8 to the highest in more than 10 weeks and remained above the 20-day average yesterday. Buyers of the contracts may have been betting that the stock price would recover after plunging 28 percent on Jan. 8 amid bankruptcy speculation.
Countrywide issued a statement declining to comment and Bank of America spokesman Bob Stickler declined to respond to an earlier report about the talks in the Wall Street Journal, which cited people familiar with the situation.
Bank of America Chief Executive Officer Ken Lewis said last year he planned to scale back risk after losses from investment banking.
``There is significant risk to the buyer,'' said Mark Batty, who helps manage about $77 billion at PNC Wealth Management in Philadelphia. ``The credit cycle is worsening and as we know Countrywide doesn't have the cleanest of portfolios.'' Foreclosures and late payments rose to the most in more than five years during December, the company said yesterday.
Bankruptcy speculation may have driven down Countrywide's price to a level that Bank of America finds attractive, said Robert Pardes, the former head of OceanFirst Financial Corp.'s Columbia Home Loans unit in New Jersey.
``It is an absolute opportunity for Bank of America to acquire an infrastructure they admire, including Countrywide's great technology, and, at these levels, it's mitigating most of the asset issues,'' he said. For Countrywide, there isn't ``a lot of opportunity for success over the short term.''