Countrywide Financial, reported to be in talks with Bank of America, has been entertaining bidders for several months to either form an alliance with Countrywide or acquire it, Wall Street sources say.
Earlier,The Financial Times reported that Bank of America, the nation's second largest bank, and Countrywide, the largest U.S. mortgage lender, are in talks that could lead to a merger or other type of deal. Neither company would comment on the report.
The sources tell CNBC that talks between Countrywide and its possible bidders have ranged from joint venture to acquisition and a deal would have to be north of $40 a share.
In the case of an acquisition, Countrywide could fetch $30 billion or more. That would make it Bank of America's third largest deal, after its $49 billion acquisition of Fleet and its $35 billion purchase of MBNA.
They also point out that Countrywide CEO Angelo Mozilo, a cofounder of the company, is beyond retirement age and may be looking to use a deal as an exit strategy. Shares of Countrywide rose after the Financial Times report, while Bank ofAmerica shares traded lower. Before Friday, Countrywide's market capitalization was about $25 billion.
The Financail Times report said the two companies have held talks about an alliance or merger to create the biggest U.S. mortgage lending group and cited people close to the matter. The newspaper also said the talks are at an early stage and could fall apart, it said.
But Prudential Securities analyst Michael Mayo issued a report saying he doubted Bank of America would be a buyer for Countrywide but that it could be interested in a joint venture.
"First, we doubt that Bank of America would purchase Countrywide. BAC said that that it would not purchase a thrift and Countrywide seems more akin to this than a bank. Also, BAC is on the record for saying they do not like the accounting related to servicing portfolios," Mayo wrote.
"A joint venture is possible since Bank of America often looks for more product to push via its infrastructure whereas Countrywide could use additional distribution," he wrote.
A venture might help Bank of America, which has more deposits than any other U.S. bank and is the largest credit card issuer, achieve dominance in mortgage lending.
A deal with Countrywide would come on the heels of Bank of America CEO Kenneth Lewis' deal last year for credit card issuer MBNA and the 2004 Fleet deal.
"They are ready, but even though they are ready, B of A's attached to a lot of rumors, so it's hard to put credence on any one," Jefferson Harralson, an analyst with Keefe Bruyette & Woods, said on CNBC's Closing Bell.
Harralson, though, said this type of combination could make sense.
"This does fit in with something that B of A wants," Harralson said. "But it's very speculative, and you have to say the odds are against a deal happening."
A combination might also be a crowning achievement for Mozilo, who founded his company in 1969 and recently signed a contract extension to keep him at Countrywide's helm through 2009, when he will be 71.
Bank of America has 5,747 U.S. branches, roughly two-thirds more than any other company. Countrywide last year originated $462.5 billion of mortgage loans.