Bank Of America Puts $2 Billion Into Beleaguered Countrywide

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Countrywide Financial’s shares rose 7% today as investors decided the $2 billion infusion of capital from Bank of America is proof that the company will survive. Countrywide, like many other subprime lenders, has been hanging on by a thread as the bad loans pile up.

In a move that could help the largest U.S. mortgage lender survive a crisis that’s rocking the home-loan industry, Bank of America (BAC) said late Wednesday it invested $2 billion in convertible preferred securities of Countrywide (CFC: Countrywide Financial Corp) . The nonvoting securities pay an annual interest rate of 7.25%.

They can be converted into common stock at $18 a share. If that happens, Charlotte, N.C.-based Bank of America won’t be able to trade the stock for 18 months after conversion, the two companies said in a statement. Separately, Wachovia upgraded Countrywide to market perform from underperform, citing the Bank of America investment.

“We believe that Countrywide Financial still faces many near-term challenges. But the influx of cash and capital reduces the potential for a catastrophic liquidity event, in our view,” Wachovia told clients early Thursday. “Recent actions also suggest that the Federal Reserve is willing to provide liquidity despite lingering inflation concerns.”

The move is seen as a vote of confidence in the struggling Countrywide Financial, which is the nation’s largest mortgage lender. Last week the company narrowly averted a run on the bank, that might have threatened their existence.

Currently, Bank of America does not foresee a merger with Countrywide.

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