Countrywide Financial Corp., which last week said it had drawn down an $11.5 billion line of credit with 40 of the world’s largest banks, announced Wednesday that it had obtained an additional $2 billion capital infusion from Bank of America — but it came at a price.

In return for its investment, Bank of America was granted a nonvoting convertible preferred security yielding 7.25 percent annually, which it can convert into common stock in the company at $18 per share.

Countrywide’s stock, which has traded at $15 to $45 in the past year, closed at $21.82 Wednesday before the announcement of Bank of America’s investment was released.

Countrywide stock surged 10 percent Tuesday after a Wall Street Journal story discussed the possibility that Berkshire Hathaway Inc. would seek to acquire the Calabasas, Calif.-based lender. Bank of America has also been mentioned as a potential Countrywide suitor, and the lender’s stock was up 20 percent in after-hours trading Wednesday.

Countrywide stock hit a year low of $15 a week ago after an analyst warned the company could face bankruptcy if it was unable to obtain short-term funding for its loans and was forced to sell its assets at a discount.

The stock rebounded after the Federal Reserve slashed the discount rate — the rate banks pay for direct loans — from 6.25 percent to 5.75 percent, and made the loans repayable over 30 days, instead of overnight.

“We believe that in the current turmoil the stock market has been underestimating the value in Countrywide’s operations and assets,” Kenneth Lewis, Bank of America chairman and chief executive officer, said in a statement. “This investment reflects our confidence in their business and recognizes the importance of the company in providing home financing across the country.”

Lewis said he hoped Bank of America’s investment would be “a step toward a return to a more normal liquidity in the mortgage markets.”

Source:

http://inman.com/inmannews.aspx?ID=64327