( dpa )- Bank of America will buy ailing top US mortgage lender Countrywide Financial Corp for 4 billion dollars after the lender suffered heavy losses in the subprime mortage crisis, the bank said Friday.
Countrywide shares had fallen by 80 per cent since the summer after declining home sales and increasing defaults on mortgages to borrowers with poor credit rippled through US credit markets and led to the largest US lender's first quarterly losses in 25 years.
Rumours about a possible bankruptcy had circulated, and though Countrywide denied them, investors continued to worry that a continuing wave of home foreclosures, a slumping real-estate market and a slowing economy would continue to hurt the industry.
Countrywide sales were pushed up by news of the merger Thursday, but fell in early trading Friday. Bank of America shares rose.
Bank of America was to pay about 7.16 dollars a share for Countrywide, whose shareholders were to receive 0.18 Bank of America shares, the Charlotte, North Carolina-based bank said. The management of Countrywide backs the offer.
Bank of America already holds 16 per cent of the mortgage lender after Countrywide sold it 2 billion dollars of stock in August in a bid to bolster its finances.
The merged company will not offer subprime mortgages, but will continue to offer programmes by both organizations to assist borrowers in danger of defaulting on their loans, Bank of America said.
The deal is to be completed in the third quarter.
Countrywide, based in Calabasas, California, originated 408 billion dollars of mortgages in 2007 and services 1.5 trillion dollars on 9 million loans.
Bank of America will take 1.2 billion dollars in restructuring charges related to the move, but expects the merger to be profitable by 2009.
Losses related to subprime mortgages have cost the largest financial firms about 100 billion dollars, Bloomberg financial news estimates.