Countrywide shares retreat
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The beat-up shares of Countrywide Financial Corp. tumbled 14% on Monday on reports that the FBI had opened a criminal inquiry into whether the home lender misled investors about the quality of its mortgages and its financial condition.
The decline suggests investors are skeptical that Bank of America Corp. will proceed with its $3.7-billion acquisition of Countrywide, but a Bank of America spokesman said the deal was on track.
Meanwhile, a representative of the FBI’s Los Angeles office challenged the reports, which appeared over the weekend in the Wall Street Journal and the New York Times, of a preliminary inquiry by the FBI’s New York office and Justice Department officials into possible securities fraud at Countrywide.
Countrywide stock sank 71 cents Monday to $4.36, its lowest close in nearly 13 years. The stock is down 88% in the last year.
Bank of America’s all-stock offer to acquire the Calabasas-based lender, which lost $1.2 billion in the second half of 2007, is worth $6.43 per Countrywide share, based on Monday’s closing price of Bank of America shares.
That means the stock market is applying a 32% discount to the value of the offer, suggesting some investors are betting that the deal won’t go through.
An official of the Securities and Exchange Commission told the Los Angeles Times last fall that the SEC’s L.A. office was investigating Countrywide. The SEC has only civil enforcement authority, and its L.A. office generally turns evidence of crimes involving companies in the region over to local federal prosecutors and FBI agents.
Countrywide said over the weekend that it was unaware of any such investigation. The company didn’t respond to requests for comment Monday.
FBI officials in Washington declined to comment, and an FBI spokesman in New York didn’t return phone calls. Michelle Wein Layne, an SEC associate regional director for enforcement in Los Angeles, also declined to comment, as did Douglas A. Axel, chief of the major frauds section at the U.S. attorney’s office in Los Angeles.
But Laura Eimiller, a spokeswoman for the FBI’s Los Angeles office, called the reports “just wrong.”
“If there’s any inquiry to be opened, it’s going to be out of this office,” she said.
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