Page last updated at 22:10 GMT, Monday, 5 May 2008 23:10 UK

US mortgage firm deal 'at risk'

Countrywide banking and loan office in California
Countrywide was almost bankrupted by the US housing crisis

A deal for Countrywide Financial, the third largest US mortgage lender, to sell itself to the Bank of America may be at risk, analysts have suggested.

The bank may renegotiate the deal or walk away completely, some say.

Shares in Countrywide, which has been hit hard by the housing market woes, fell 10% on the comments.

However the Bank moved to douse speculation of the move collapsing, saying the $4bn transaction was "on track to close as agreed".

Last week Countrywide announced a loss of $893m (452m) in the first three months of 2008, giving total losses of $2.5bn in the nine months to the end of March.

The results were worse than had been expected.

'Scary news'

Brokers firm Friedman, Billings Ramsey said that there was a danger the deal would fall apart.

Meanwhile analysts at S&P Equity Research said that the rapid slump of Countrywide's credit portfolio meant Bank of America would lower its price.

In January the bank agreed to buy Countrywide for $4bn (2bn), but last week it said there were no guarantees that it would take on any of the mortgage lender's outstanding debt.

This was "most likely the first step in renegotiating the entire deal", said Friedman analyst Paul Miller.

In its results update last week, Countrywide said about one in 11 borrowers overall and more than one in three sub-prime borrowers had fallen behind on home loan payments - both nearly twice as many as a year earlier.

Sub-prime loans are those offered to people with poor credit records or unpredictable incomes.

"The one piece of scary news that's out there is if Bank of America were to say, 'Oh my God, we've looked under the hood at Countrywide and it's just so bad we have to walk away from this deal,'" said Stephen Massocca, co-chief executive of San Francisco-based investment bank Pacific Growth Equities.

"If they were to walk away from this deal, what will that mean? Will Countrywide have to file for bankruptcy? Will all the Countrywide paper get dumped into the market? Nobody knows.

"It may be that there are reasonable answers to all this, but if that were to happen, that won't be good for the market."


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