May 2 (Bloomberg) — Countrywide Financial Corp.’s credit rating was unexpectedly cut to junk by Standard & Poor’s Corp., which cited doubt about whether Bank of America Corp. will back the home lender’s debt after a pending takeover is completed.
The revision reflects “the new level of uncertainty as to the ultimate legal status of Countrywide’s creditors” after the lender’s sale to Bank of America, Standard & Poor’s said in a statement today. Prices on some of Countrywide’s $97.2 billion in debt tumbled and instruments that protect investors from default posted their biggest jump in almost four months.
S&P made the cut just two days after saying it might raise Countrywide’s ratings. The reversal squelched expectations among bond owners that their holdings would become more secure after Bank of America buys Countrywide, and renewed doubts among analysts about whether the $4 billion stock-swap will be completed at all.
“There’s no way that bondholders come out of this with anything but a severe haircut,” said Christopher Whalen, managing director at Institutional Risk Analytics, a banking research firm in Torrance, California. Bank of America may be trying to compensate for the anticipated cost of lawsuits tied to Countrywide mortgages that have gone sour, he said.
Raising Doubt
Bank of America, the second-largest U.S. bank by assets, agreed in January to buy Countrywide, the largest U.S. mortgage lender. The bank, based in Charlotte, North Carolina, rose 1 percent to $39.79 at 4:15 p.m. in New York Stock Exchange composite trading. Countrywide, based in Calabasas, California, dropped 1.1 percent to $5.98. … continue reading this entry.
