WILMINGTON, Del. - Fears that troubled mortgage lender Countrywide Financial Corp. has been on the verge of bankruptcy were due to unfounded rumors, Bank of America Corp. chief executive Ken Lewis said yesterday.
"I think the bankruptcy was a malicious rumor," said Lewis, denying that government pressure to keep the nation's largest mortgage lender out of bankruptcy played any role in his company's decision to acquire Countrywide for $4.1 billion in stock, rescuing the lender and expanding the financial services empire of the nation's largest consumer bank.
Before the deal was revealed last week, shares in Countrywide hit a record low on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans - those made to borrowers with weak credit.
"I don't know all the reasons," Lewis said of what he described as baseless rumors.
"They had a very impressive liquidity plan; they had their backup lines in place," Lewis said before a speech to the Delaware State Chamber of Commerce.
Lewis also expressed a degree of surprise with the attention given to what he said was a relatively small transaction for Bank of America. "I guess it's the state of things," he said.
In acquiring Countrywide, which services 9 million home loans, Bank of America takes on a variety of market risks and potential legal liabilities, including shareholder lawsuits and questions about the Calabasas, Calif.-based lender's conduct in bankruptcy proceedings involving its customers.
Lewis acknowledged the potential problems, saying Bank of America conducted twice as much due diligence as it ordinarily might have, "with twice as many people."
"I have confidence that we properly assessed the issues," he said, adding that barring unexpected developments, Bank of America plans to stick with its $4.1 billion offering for Countrywide.
"We think we've struck a fair price," he said.
Asked about potential job cuts resulting from the transaction, Lewis noted that Countrywide will operate separately after the deal closes in the third quarter and it would not be integrated before 2009.
"At some point we will address the issue of jobs, but we haven't done that at this point," he said.