(Read more on the debt and equitymarkets.)

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CALABASAS, CA-Bank of America has agreed to buy struggling homelender Countrywide Financial Corp. for $4 billion in an all-stocktransaction, a deal that bails out the financially troubled homeloan giant and makes Charlotte, NC-based BofA the country's largesthome mortgage originator. Bank of America's statement this morningregarding the acquisition says that, "Origination of subprime loansis not planned for the combined company," a reference to thesubprime home mortgage collapse that ultimately sank Countrywidewhile sending financial shock waves throughout the commercial realestate financing world and the rest of the capital markets.

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The deal also ends speculation that Countrywide might file forbankruptcy, but it leaves unanswered the question of what willhappen to Angelo Mozilo, Countrywide's CEO, who at one time wasscheduled to retire but chose to stay on. Bank of America CEOKenneth Lewis addressed that question this morning in a conferencecall with financial analysts, saying, "I would want [Mozilo] tostay until the deal gets done, and then I would guess that he wouldwant to go and have some fun, but I will talk to him next weekabout his personal desires."

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Mozilo founded Countrywide in 1969 and built it into thecountry's largest home loan originator, but the company's ventureinto subprime lending has resulted in huge losses, including a netloss of $1.2 billion for the third quarter ended Sept. 30. Only ayear earlier, before the subprime collapse, the company hadreported quarterly net income of $648 million.

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The acquisition of Countrywide will make Bank of America notonly the nation's largest mortgage lender but also its largest loanservicer. Countrywide originated $408 billion in mortgages in 2007and has a servicing portfolio of about $1.5 trillion with ninemillion loans.

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Under the terms of the acquisition agreement, shareholders ofCountrywide would receive .18 of a share of Bank of America stockin exchange for each share of Countrywide. The deal is expected toclose in the third quarter, subject to approval of the companies'shareholders and customary regulatory approvals. After closing,Bank of America plans to operate Countrywide separately under theCountrywide brand with integration occurring no sooner than2009.

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BofA's Lewis, in his comments on the deal, noted that it"reflects the issues within the housing and mortgage industries,"which have turned topsy-turvy since the subprime mortgage messbegan to unfold last year. When the subprime troubles first beganto reveal themselves, some industry observers suggested that therisky loans would affect only the housing market, but the problemsquickly spread throughout the capital markets.

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Within weeks, borrowers looking for financing on some classes ofcommercial real estate found themselves having to pay a fullpercentage point more for loans--at higher interest rates andwithout other favorable terms such as interest-only clauses. Thesubprime troubles have been blamed for a host of subsequentproblems, including wider interest-rate spreads over Treasuries anda general economic slowing.

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Most recently, a year-end report on the Orange County officemarket cited the subprime meltdown as the chief factor in theoffice market's negative net absorption of nearly one million sffor 2007. One of the companies that vacated some of that space wasone of the country's largest subprime lenders, New CenturyFinancial Corp., a once high-flying firm that occupied 267,000 sfin one Orange County office building and was committed to anadditional 190,000 sf before it went bankrupt last year.

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