Bank of America, the second-largest U.S. bank, may announce a deal shortly to buy Countrywide Financial, the largest U.S. mortgage lender, CNBC has learned.
The announcement may come after the close of trading today or sometime tomorrow.
The companies did not immediately return several requests for comment.
Countrywide shares were up $2.95, or 57.6 percent, at $8.07 in afternoon trading, after earlier rising to $8.91. It declined to comment on the market activity, according to the New York Stock Exchange.
The shares remain far below their record high of $45.19, set last Feb. 2. Bank of America shares rose $1.02 to $39.76 in afternoon trading.
Countrywide has been struggling with the U.S. housing slump and said Wednesday that foreclosures and late payments among home loans for which it collects payments rose to the highest levels on record in December.
The Calabasas, California-based company's market value had fallen to about $3.2 billion Wednesday from roughly $26 billion less than a year earlier.
Bank of America in August bought $2 billion of Countrywide preferred shares convertible into a roughly one-sixth stake in the lender. While that investment has lost money on paper, it
was viewed as making Bank of America, which also faces rising credit losses, an obvious candidate to buy Countrywide, eventually.
"Somebody is going to have to absorb the massive losses in right-positioning Countrywide," said Sean Egan, managing director of credit-rating firm Egan-Jones Ratings Co. "It can
be done, but the cost is going to be exorbitant. From Countrywide's perspective, it is their best chance for salvation."
A merger would come only three months after Charlotte, North Carolina-based Bank of America paid $21 billion to buy LaSalle Bank Corp from Dutch bank ABN Amro Holding.
Kenneth Lewis, the bank's chief executive, has not been shy about mergers, spending well over $100 billion in the last four years on acquisitions.
In Countrywide, the bank would be buying damaged goods.
Countrywide overhauled its lending practices this summer, essentially ending subprime and other riskier home loans, after being forced to draw down an $11.5 billion credit line because
investors would not buy its mortgages or offer credit.
The problems led to a $1.2 billion third-quarter loss. Countrywide now primarily makes smaller home loans considered less likely to default and has eliminated about 11,000 jobs since the end of July, ending the year with 50,600 employees.
Chief Executive Angelo Mozilo has called the nation's housing slump the worst since the Great Depression.
Critics have faulted Mozilo for encouraging loose lending practices at Countrywide that they say contributed to the current housing crisis.
He has also been criticized for realizing hundreds of millions of dollars in compensation and from exercising stock options over the last five years, even as the housing problems
grew more evident.