Bank of America Determined to take over Countrywide

In a conference call on Monday with investors, Kenneth D. Lewis, the chief executive of Bank of America, confirmed his commitment to the Countrywide buyout, which is expected to close by the end of September.

Bank of America has been strangely silent about its plans for merging the two operations, with the exception of a cryptic regulatory filing last month warning that investors should not count on it assuming all of Countrywide’s debt.

But in a conference call on Monday with investors, Kenneth D. Lewis, the chief executive of Bank of America, confirmed his commitment to the Countrywide buyout, which is expected to close by the end of September. When asked about the fact that home prices have plummeted and loan defaults have soared since the deal was announced, Mr. Lewis defended it as “compelling,” with a “pretty nice” upside. “We don’t have our heads in the sand,” he said.

“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Bank of America CEO Ken Lewis said in a statement.

On Thursday, the Federal Reserve signed off on the transaction. Yet Countrywide’s ugly financial results of late show no sign of abating. In the last three quarters, it has lost $2.5 billion, according to financial filings. In the first quarter of 2008, total nonperforming assets hit $6 billion, almost five times that of the same period last year.

“We understood that there was a black hole from here to there and that Countrywide was going to go through some financial difficulties,” said Robert Stickler, a Bank of America spokesman. “The question was how big is the hole. We did more due diligence than we have ever done on a deal and we concluded that the hole was manageable.”

Countrywide declined to comment for this article.

Because of the credit risk in Countrywide’s books, Paul J. Miller, managing director at Friedman, Billings, Ramsey, a securities firm, estimates that the deal will cost Bank of America an additional $10 billion to $15 billion above the $4 billion purchase price when a final accounting of losses is made.

“This is a horrible deal,” Mr. Miller said. “Ken Lewis wants to be No. 1 in this business and Countrywide gives him the capacity to be a very dominant player. But Bank of America has all the pieces in place already. They don’t need this.”

Countrywide’s reputation as an efficient mortgage servicer has been tarnished repeatedly in recent months. Last March, the company came under blistering criticism from Jeff Bohm, a federal judge in Houston, who told it to “mend” its “broken practices.” And the United States Trustee, a Justice Department unit that oversees the integrity of bankruptcy courts, has sued Countrywide, contending that its tactics represent an abuse of the bankruptcy system.

“If servicing is the crown jewel and there are aspersions being cast upon it by these relatively neutral judges and bankruptcy trustees, then it may be a serious-enough problem,” said Carl Tobias, professor of law at the University of Richmond in Virginia. “I think there ought to be concern on Bank of America’s part as to reputation and what these bankruptcy trustees and judges are saying.”

As regulation of the mortgage industry increases, Countrywide’s soup-to-nuts offerings of other loan-related businesses — insurance, appraisals, document preparation work — may become something of a liability.

Walter O’Haire, senior analyst at Celent, a research and consulting firm, said, “If I were Bank of America, I would be in close discussions with the regulators and the U.S. Trustee and send two messages: We want to do this deal but we can only do it if it’s good for B. of A. shareholders. And don’t paint us with the Countrywide brush because we are not Countrywide.”

Mr. Lewis of Bank of America may have the same idea. At last week’s conference call, he said the Countrywide name would be dropped after the merger.