Bank of America may back out of its planned acquisition of Countrywide Financial Corp. if it can’t negotiate a better deal, analysts said after Bank of America revealed that it might merge the troubled lender into a subsidiary and not guarantee all of Countrywide’s corporate debt.

Bank of America officials disclosed in a May 1 regulatory filing that they have not decided whether they will honor more than $24 billion in Countrywide debt. Analysts at Standard & Poor’s Ratings Services cut Countrywide’s corporate debt rating to junk the next day.

Charlotte, N.C.-based Bank of America says it still intends to complete the acquisition in the third quarter, but also revealed Countrywide could be merged into a subsidiary rather than acquired in whole by Bank of America — news that also surprised analysts at the rating agency.

Analysts at Standard & Poor’s Equity Research say they expect the deal will go through, but at a reduced price, Reuters reported. A Friedman, Billings Ramsey analyst said Bank of America might back out of the deal because of growing losses in Countrywide’s loan portfolio.

The troubled Calabasas, Calif.-based lender has reported three consecutive quarters of losses totaling $2.5 billion. In the company’s most recent report to investors, it reported boosting reserves for credit losses by $1 billion, to $3.4 billion, after first-quarter charge-offs hit $606 million, up from $283 million in the previous quarter (see story.)

Although Countrywide has stopped making subprime loans, Bank of America officials say they will further tighten Countrywide’s underwriting standards if the acquisition is completed, and modify the terms of $40 billion in troubled mortgages in the next two years to prevent foreclosures (see story). Bank of America also plans to drop the Countrywide brand name.

When announced in January, the all-stock deal was valued at $4 billion, and proposed that Countrywide shareholders receive 0.1822 shares of Bank of America common stock for each of their Countrywide shares. The deal valued Countrywide shares, which were trading at around $5 at the time, at $7.06, based on Bank of America’s share price at the time of $38.74.

Countrywide shares were down more than 16 percent in afternoon trading Monday, to around $5, down from a 52-week high of $42.24.

***

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