Upon reports of a criminal probe launched by the FBI into possible securities fraud, Countrywide Financial Corp. shares crashed 14% to the lowest point in 13 years - but Bank of America Corp. insisted that a planned $3.7 billion merger remains on track.
Shares of the Calabasas, California-based lender closed down 71 cents to $4.36 on Wall Street Monday, the lowest level since company stock stood at $4.35 in April 1995.
Meanwhile, shares of Bank of America fell 3.9% to $35.31, also stocks of a number of large banks fell on news of a sizeable round of downgrades by Fitch Ratings.
BoA agreed to purchase the nation's largest mortgage lender at a 7.5% discount from $7.75 per share in January, a far cry from the $45.26 reported last year on January 26.
Despite the decline, a Bank of America spokesman indicated that "the transaction is on track."
Given a clear chance to back out of the deal, the decision to move forward fueled a theory proposed by one analyst suggesting that the bank was mainly purchasing Countrywide as a massive tax write-off.
Tax guru Robert Willens, who spent more than 20 years at Lehman Brothers, estimated that Bank of America would be able to deduct $270 million of Countrywide's losses annually for the first five years it owns the firm.
Countrywide reported a fourth-quarter net loss of $422 million and an annual loss of $704 million for 2007 in stark contrast to a profit of $2.7 billion for 2006.
After the release of the earnings report, investors signaled concern that the acquisition would fall through, a concern that mounted once more with the announcement of a criminal probe over the weekend.
Countrywide has become the subject of an FBI criminal investigation into possible securities fraud for suspicions that the company misrepresented its financial health.
Both Justice Department and the Federal Bureau of Investigation have begun a criminal inquiry into public representations of the nation's top lender as the subprime crisis impacted the company.
Last spring, the FBI began a broader probe into possible accounting fraud, insider trading or other violations tied to the subprime market.
The investigation has focused on 14 companies across the financial spectrum, from mortgage lenders and loan brokers to Wall Street banks that packaged mortgages into securities for the secondary market.
The FBI criminal probe is being conducted in conjunction with the Securities and Exchange Commission (SEC), which has about three dozen civil inquiries into the making and packaging of securities backed by subprime loans.
The criminal probe reportedly remains in an early stage and it is unclear when or whether any charges might be filed.
Countrywide indicated that it is unaware of such a criminal probe, and a spokesman for the FBI declined to confirm the opening of an investigation related to security filings by the company.
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