Countrywide saved / exploited by BofA today
Investors cheer BofA's $2 billion investment into Countrywide... an iconic bankruptcy threat dissipates. On CNBC, BofA is being lauded as providing proactive support to their industry, but look at the sweet deal BofA received:
Under the terms of the deal, Charlotte, N.C.-based Bank of America acquired $2 billion in the form of nonvoting, convertible preferred stock yielding 7.25 percent annually, Countrywide said. The shares can be converted into common shares of Countrywide at $18 per share, with certain restrictions.As of Thursday 9:30pdt, Countrywide shares are up to $22.83 (up 4.6% from yesterday, of course the uptick was predicable). So BofA gets a nice preferred yield, but more strikingly, they received stock convertible at an $18 strike price. a 17% discount off yesterday's closing price of $21.82. BofA knows the mortgage industry so with quick due diligence, they were able to pull the trigger and come out looking like saviors and shrewd at the same time.
If Bank of America were to convert its shares under Countrywide's current share count, it would hold between 16 percent to 17 percent of Countrywide shares, said Robert Stickler, a Bank of America spokesman.
Paradoxically, BofA share prices are almost unchanged now... the credit crisis + foreclosures + whipsawed housing markets will continue to be rusty anchors on the economy for a while.
Technorati Tags: CFC, BAC, Countrywide, Bank of America, BofA, subprime
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