Struggling mortgage giant Countrywide Financial Corp. was thrown a financial lifeline Wednesday by Bank of America Corp.
Calabasas, Calif.-based Countrywide announced that BofA had made a $2 billion investment in the company in the form of preferred stock.
Countrywide will pay BofA an annualized yield of 7.25 percent on the investment.
The news sent Countrywide’s battered stock soaring to $25.83 in after-hours trading Wednesday. It had closed at $21.82 in regular trading on the New York Stock Exchange, up 3 cents for the day.
Countrywide, the nation’s largest mortgage lender, has been reeling for 10 days as rumors swirled about its financial condition.
The company has been squeezed by the credit crunch on Wall Street, as lenders and investors shut off credit to many mortgage companies amid fears of deepening woes in the housing sector.
More than a week ago, a Merrill Lynch & Co. analyst advised investors to sell Countrywide stock, warning that the company could face insolvency if the credit crunch worsened. That warning helped trigger a violent sell-off in the stock market overall, drove Countrywide shares down 23 percent for the week and caused some savers with deposits at Countrywide’s retail bank to pull their funds.
With Bank of America’s decision to pump $2 billion into Countrywide, Wall Street is likely to put aside fears that the company could fail, analysts said.