Friday January 11, 02:18 PM
Bank of America being paid to take risk on Countrywide, Morgan Stanley says
BOSTON (Thomson Financial) - Shares of Bank of America Corp. got a slight lift early Friday following news of its planned $4 billion stock acquisition of troubled mortgage lender Countrywide Financial Corp.
B of A shares added
1.5% in premarket action to $39.90.
Morgan Stanley (SPU - news) had a quick reaction to the deal, which calls for Bank of America to swap .1822 of a share for each share of Countrywide (LSE: CWD.L - news) stock, saying it believes the transaction will add 4% to earnings in 2008 and 8% in 2009.
The firm said the lack of a premium in the acquisition may be a sign of more subprime pain for Countrywide. Based on Thursday's close, the transaction values Countrywide shares at roughly $7.16 each, a 7.6% discount to their finish yesterday when reports of talks between the companies first surfaced.
'The low purchase price suggests to us that Bank of America is being paid for taking risk in a deteriorating mortgage environment and that losses in Countrywide's mortgage book may be greater than we estimated,' Morgan said.
For its part, Bank of America, based in Charlotte, N.C., said in its press release that it anticipates the deal will close in the third quarter and be neutral to earnings in 2008 before adding to earnings in 2009. This view excludes merger and restructuring costs.
B of A sees after-tax cost savings of $670 million from the transaction, a figure that represents 11% of the expense base of the company's mortgage operations.
Shares of Countrywide Financial (NYSE: CFC - news) , a Calabasas, Calif.-based mortgage lender, were off 9% to $7.05 in premarket trading.
Greg Saulnier
gs/mb
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