CHARLOTTE - When Bank of America chief executive Ken Lewis announced his plan in January to buy Countrywide Financial for $4 billion, he was hailed by some as a bargain shopper coming to the mortgage lender's rescue.

Now, some analysts wonder whether he should be headed to the return counter.

At Calabasas, Calif.-based Countrywide, loan losses and legal woes continue to pile up for a major player in the nation's subprime mortgage mess. The worry is that Bank of America shareholders will pay the bill for the lender's excesses during the housing bubble.

For months, speculation has swirled about whether the Charlotte-based financial giant would abandon the deal. But the bank said last week it's targeting July 1 to close the purchase, pending Countrywide shareholder approval on Wednesday. Some analysts still wonder whether Bank of America will find a way to separate the good parts of the company from the bad, allowing it to ward off potential losses.

If the deal ends up a success, Lewis captures as much as one-fourth of the mortgage market, adding to his bank's dominance in credit cards and checking accounts. With Countrywide's mortgage know-how and vast sales force, he can tap new customers and make more money from existing ones.

At the other extreme, Bank of America, already wrestling with its own loan problems and a slowing economy, could rack up massive losses and a big legal tab. The housing market could continue to falter. The tarnished Countrywide name could stain Bank of America's well-known brand.

Lewis, 61, doesn't have to look far down Tryon Street to see what happens to bank CEOs saddled with bad mortgage deals. Wachovia's Ken Thompson lost his job this month after misfiring on his $24 billion Golden West Financial acquisition.

In his seven-plus years at the helm, Lewis has won a reputation as a skilled acquirer who makes bold deals work. Now, one of his smallest purchases could be his riskiest.

"He is putting it on the table that this is a good deal in the long run," said Jaime Peters, analyst with Morningstar. "He has put his reputation on the line."

Glow fades to headaches

When he took over as CEO from Hugh McColl Jr. in 2001, Lewis, a Mississippi native who has spent nearly four decades at the company, initially focused on improving operations. But he soon went on a $100 billion-plus acquisition spree to expand in the Northeast and Chicago, as well as in credit cards.

The Countrywide takeover started out as a $2 billion investment last August to help shore up the nation's biggest mortgage lender. Amid the credit crunch, the company was struggling to get the financing it needed to stay afloat. In addition, the once booming business of making subprime loans to borrowers with spotty credit had dried up and customers were increasingly struggling to make payments.

Five months later, amid rumors of a possible bankruptcy filing by Countrywide, Bank of America announced an outright purchase.

After the initial glow of a new deal, the headaches began to mount. Countrywide CEO Angelo Mozilo came under fire for his compensation, which included cashing out $121 million in stock options as the company swooned last year. Sen. Chuck Schumer, D-N.Y., a member of the Senate finance committee, criticized Bank of America's plan to put Mozilo's lieutenant, David Sambol, in charge of the combined mortgage unit. Customers and even cities filed lawsuits alleging lending abuses.

Countrywide's taint even spread this month to the presidential campaign. Jim Johnson, the former Fannie Mae chief who was vetting vice presidential candidates for Democrat Barack Obama, resigned after allegations surfaced that he had received special loans from the lender.

Next page >