Posted by MAX

Bank of America and Countrywide Financial have held discussions about an alliance that would create the biggest mortgage lending group in the US, people close to the matter said.

The talks are said to be at an early stage and may not lead to a deal. But if they proceed, the negotiations could lead to a joint venture between the two companies, under which BofA would use its big branch network to help sell home mortgages originated by Countrywide. Countrywide would have the support of BofA’s far bigger balance sheet to fund its lending.

The talks could also lead to an acquisition of Countrywide by BofA, which is eager to expand its mortgage lending business to match its breadth in credit cards. Such an acquisition would probably cost BofA, the second-biggest US bank, about $30bn (£15bn), analysts said.

The talks indicate that BofA continues to focus on expansion in the US in spite of recent reports that it might be interested in buying UK bank Barclays. Ken Lewis, chief executive, has said a major foreign acquisition would be difficult for BofA to execute.

BofA said it did not comment on market rumour. Countrywide did not respond to a request for comment.

Countrywide shares soared 11 per cent after FT.com disclosed a possible alliance. They closed up 4.2 per cent at $42.00. BofA shares fell slightly to $52.04.

Banking analysts said a deal could make sense for both sides. BofA would dramatically expand its ability to serve consumers, while Countrywide would get the financial muscle to withstand the current slowdown in the mortgage business.

"This would cement Bank of America’s lead as the dominant retail bank in the US," said Gerard Cassidy, banking analyst at RBC Capital Markets. He added that even if BofA were to buy Countrywide outright it could avoid violating the US law forbidding banks from having more than 10 per cent of consumer deposits following an acquisition.

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