Filed under: Deals, Bad news, Law, Bank of America (BAC), Countrywide Financial (CFC)
The FBI is probing whether Countrywide Financial (NYSE: CFC) committed securities fraud by making false statements about the mortgage bank’s deteriorating financial position.
The Wall Street Journal (subscription required) reports that a “potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide’s losses might be several times greater than it has disclosed.”
Aside from the potential civil and criminal issues at stake, the investigation could kill the takeover of Countrywide by Bank of America (NYSE: BAC). It is not clear whether the mortgage company can make it as an independent operation if the large bank withdraws it offer. If auditors and the government determine that CFC losses are much greater than represented, it might drive the mortgage firm into insolvency.
The Bank of America deal is probably the only way that Countrywide shareholders can get any money for their shares. The company’s stock has dropped from a 52-week high of $42.24 to just above $5, which isn’t much above its 52-week low.
The news reports of the FBI probe is prone to push shares lower. If new, significant losses have to be reported, the price of CFC’s stock might go to zero.
Douglas A. McIntyre is an editor at 247wallst.com.
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