Countrywide Shares Plunge on Report of FBI Probe


Countrywide Financial shares fell following reports it was being investigated by the Federal Bureau of Investigation for possible securities fraud.

The largest U.S. mortgage lender is being investigated for whether it misrepresented its financial condition and the quality of its loans in securities filings, the Wall Street Journal and the New York Times said over the weekend, citing people with knowledge of the case.

An FBI spokeswoman declined to comment. Countrywide has said it was unaware of any such investigation, reports said.

Bank of America, the second-largest U.S. bank, agreed in January to buy Calabasas, Calif.-based Countrywide for about $4 billion in stock.

The Charlotte, N.C.-based bank did not immediately return a request for comment, but has said the merger remains on track to close in the third quarter.

Countrywide shares were down more than 12 percent Monday. Bank of America shares fell more than 3 percent.

Countrywide already faces a wide array of lawsuits and regulatory probes into its lending practices.

Like many mortgage lenders, Countrywide has suffered from falling home prices, soaring defaults, tighter capital markets, and a plunge in investor demand for many of its home loans.

Its February monthly operating report, expected within the next week, may show how well Countrywide weathered new capital market disruptions that began during the month.

Even before the weekend, Countrywide shares were trading roughly one-fourth below where they should, indicating that some investors expect Bank of America to renegotiate the merger or walk away.

Under the merger agreement, Countrywide shareholders would receive 0.1822 of a Bank of America share for each of their shares. Based on Bank of America's Friday closing price of $36.74, that would value Countrywide shares at $6.69 each. Countrywide's shares closed on Friday at $5.07.