Countrywide Financial Corp. announced late Wednesday that Bank of America had made a $2 billion equity investment in the lending giant, easing liquidity pressures that were wearing down the company.
Through the deal, Bank of America acquired $2 billion in the form of nonvoting, convertible preferred stock yielding 7.25 percent annually, which can be converted into common shares of the mortgage lender at $18 per share.
The deal, which was completed and funded today, is perceived to be a great deal for Bank of America, who felt the current value of the company was underestimated.
I had reported about the possibility of a Bank of America and Countrywide merger back in January, and this large investment is a good indicator that the two could link up in the future.
If the two companies were to merge, it’s likely that Bank of America would service Countrywide’s loans through its 5,747 branches nationwide.
The merger makes a lot more sense now than ever, as investors and analysts had driven down the stock price of the lending giant with Countrywide bankruptcy fears, effectively valuing the company at a discount.
Hopefully the news will prevent doomsayers from worrying about Countrywide going under as well.
Shares of Countrywide rocketed on the news, rising roughly 20% in after hours trading to $26.25 a share.