Tracing Countrywide deal

Bank of America CEO Ken Lewis got a phone call in early December from Countrywide CEO Angelo Mozilo, who said he had decided to throw in the towel. That set in motion the bank's $4 billion purchase, according to the WSJ's Valerie Bauerlein and James Hagerty, with Bank of America shipping out 60 analysts to Countrywide headquarters in Calabasas (they were put up at the Four Seasons in Westlake Village). The analysts spent the next four weeks looking at the mortgage lender's books - as well as its legal entanglements. These kinds of mega-deals always involve lots of people, but the extensive due diligence is bound to raise questions about possible leaks in the days leading up to the deal, when option activity skyrocketed.

A key player during the negotiations between Countrywide and Bank of America was Edward Herlihy, a senior partner with the law firm Wachtell, Lipton, Rosen & Katz, who represented Countrywide. Mr. Herlihy has advised Bank of America for almost two decades and knows Mr. Lewis well. Those relationships proved crucial in brokering the deal, a person familiar with the matter said. On Dec. 28, Mr. Mozilo met at Countrywide's headquarters with Mr. Herlihy and other advisers, with Mr. Lewis participating by phone. The two sides agreed to pursue a deal, and on Jan. 4, Mr. Herlihy presented the plan to Countrywide's board along with investment bankers from Sandler O'Neill. They rushed to complete it this past week as speculators drove Countrywide's price below $5 amid rumors of a bankruptcy filing, which the company denied.

The Journal story also says that the SEC, which has been looking into stock sales by Mozilo, is expanding its investigation to examine Countrywide's accounting practices, including whether Countrywide set aside enough reserves to cover potential losses on the loans on its books. It’s just one more headache that Lewis inherits.