Investors bailed out of Countrywide Financial yesterday, sending its shares down 10 percent after an analyst said Bank of America would lower its price to as little as $0 a share and urged it to bail out of the deal.

The Wall Street Journal for some reason leads its C1 story with “people familiar” with Bank of America’s thinking saying its not trying to back out of $4.1 billion transaction or lower the price. But in the third paragraph it says Bank of America

has stepped up its scrutiny of Countrywide’s finances and underwriting practices for some loans. But a person familiar with the situation said while it is impossible to predict what might be found in the due-diligence process, the bank isn’t currently trying to build a case for a lower purchase price.

How’s that? You’d think B of A would have been going full bore looking at the books of its shaky acquisition from way before it even announced the deal back in January. The Financial Times is not much better, though it notes the bank has its own issues with write-downs of bad loans.

The New York Times on C1 is more skeptical—rightly—saying in its headline that the deal “is possibly in jeopardy” and emphasizing up high that Countrywide’s problems have gotten worse in the last four months. They include federal investigations into whether there was fraud at the mortgage lender, something the WSJ says B of A is looking at more closely.

The FT and The Charlotte Observer note that the analyst whose report triggered the sell-off also said if Bank of America buys Countrywide it would have to write off as much $30 billion in bad Countrywide loans. Late last week, Bank of America said it might not guarantee the $38 billion in debt that comes with Countrywide.

Deal Fever Quote of the Day from the skeptical analyst Paul Miller:

“They should walk away, but they will not,” Mr. Miller said, adding that it would be tough for “empire builders” like Mr. Lewis and his team to tolerate the damage to their reputation that would be caused by abandoning the deal. Instead, he thinks that Bank of America will try to renegotiate the deal for as little as $2 a share.

Sprint-ing away from Nextel

The Journal says on A1 that Sprint is weighing getting rid of its Nextel unit in an acknowledgement that the $35 billion deal, made just three years ago, is a “failure.”

The discussions at Sprint mark the latest unraveling in a merger that was troubled from almost the beginning. Three years ago, the deal was hailed as a way for Sprint to gain the scale it needed to go up against industry leaders Cingular Wireless, since renamed AT&T Inc., and Verizon Wireless. Nextel was a fast-growing carrier that brought a base of business customers who spent $15 to $20 more per month on average than other cellphone users. Nextel’s push-to-talk walkie-talkie technology gave its cellphones a feature other carriers couldn’t match.

Yet another deal gone bad.

Fannie and Freddie are sick

The NYT reports on A1 that an array of officials are wondering with good reason about the health of the huge quasi-governmental mortgage companies Fannie Mae and Freddie Mac. The paper buries news that some in the office that regulates it think the two may have to be bailed out, despite its top official’s public assurances.

The paper notes ominously that the two, which handle four-fifths of all mortgages since Wall Street abandoned the mortgage game, back their $5 trillion in assets with just $83 billion in capital.

The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.

And if Fannie or Freddie fail, taxpayers would probably have to bail them out at a staggering cost.

The Times says the government-sponsored enterprises, as the two companies are known, are resisting raising new capital to cushion losses and that “high-ranking government officials” are threatening to criticize them publicly if they don’t get fresh cash soon. At the same time, the government has moved to loosen restrictions on the companies so they can prop up the dismal housing market.

The paper also notes that the companies recently stopped taking charges on loans until they’re delinquent for two years, up from 120 days.

A representative of Freddie Mac said marking loans as permanently impaired at 120 days does not reflect that many of them avoid foreclosure. But the biggest risk, analysts say, is that both companies are betting that the housing market will rebound by 2010. If the housing malaise lasts longer, unexpected losses could overwhelm their reserves, starting a chain of events that could result in a federal bailout.

No cred

The Journal says on A1 that the “credit crunch is widening” as lenders make it harder for everybody to borrow money, according to a Federal Reserve survey of top bank officers. That’s not a good sign for the already struggling economy, which depends on credit as its lifeblood.

One-third of banks in the survey said they were tightening standards for credit cards. That’s more than three times the number four months ago. Seventy percent are stricter on home-equity lines of credit, which leads us to ask what are the other 30 percent thinking? And 55 percent are making it tougher for big and mid-sized businesses to borrow.

The survey, conducted in April, showed that demand for loans weakened in most categories, though not as much as in the previous three months.

The lending pullback comes as the economy slows to a crawl. The banks’ hesitancy to lend could restrain consumer spending as well as investment by businesses that depend on borrowing.

The WSJ and Bloomberg report that nearly all categories showed record high reports of loan tightening. But the FT notes that the survey was conducted early last month, which means it may not take into account changes in the mood about the crisis since then.

Forgive and forget

The Journal on A4 says the Treasury Department is meeting with about ten major home mortgage lenders to get them to speed up loan-term changes for troubled borrowers.

The new industry guidelines, if adopted, wouldn’t be binding and couldn’t be enforced by the government. But, if effective, they could help forestall aggressive action from congressional Democrats, who have lashed out at loan servicers for acting too slowly and threatened to push tougher oversight of the banking industry if results don’t improve.

Fed chief Bernanke urged banks to write off part of their mortgages and forgive part of the principle of some borrowers in order to stem the free-fall of the housing market. He essentially backed the Democrats plan to insure $300 billion in mortgages that have had their principal reduced by the banks, putting him at odds with the Bush administration, Bloomberg says.

Tropicana folds

The casino company Tropicana filed for bankruptcy protection, making it the “largest corporate filing of the year,” the WSJ says.

The Journal and the NYT on their respective C1’s say the news shows how the economic downturn is affecting Las Vegas, which is in the midst of an overbuilding spree that will hurt severely if there is a lengthy recession. The Times:

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown arrived.

As if to prove the woes, the Times quotes up high a twenty-seven-year-old from Los Angeles who only brings $5,000 of her parents’ money to gamble away on blackjack nowadays, down from $10,000 before: “My parents are in real estate, and we’re worried.”

UBS swings the axe

Swiss banking giant UBS AG said it will cut 5,500 jobs or about one in thirteen workers, Bloomberg reports. The move came as the company reported a huge $11 billion loss in the first quarter. Bloomberg and the FT note that BlackRock will buy $15 billion in distressed subprime mortgages from UBS.

Bloomberg quotes a former UBS official as saying the investment-bank industry may have to cut 35 percent of its jobs.

So do Morgan Stanley and Merck

In more layoff news, Reuters reports Morgan Stanley will fire 5 percent of its staff or about 2,000 employees.

The Journal says Merck will slash 1,200 salespeople, about 15 percent of its sales force.

FAA-ilure to function

The Journal continues to hammer away on the Federal Aviation Administration story, reporting on A3 that the agency just didn’t do more than a hundred safety reviews of airlines, blaming “inadequate resources.”

The importance of those examinations became clear earlier this year amid revelations that FAA managers allowed Southwest Airlines Co. to fly planes that hadn’t undergone mandatory structural-safety inspections. The FAA hadn’t reviewed Southwest’s system for complying with agency safety directives since 1999, a fact the Transportation Department’s inspector general and other critics have pointed to as a missed opportunity to prevent the inspection lapse.

Europe’s attitude toward bribary evolves

The WSJ scoops on A1 that French engineering firm Alstom SA is under investigation for paying hundreds of millions of dollars in bribes to win contracts—one similar to that of its competitor Siemens.

The paper says it shows that Europe is beginning to take that kind of corruption more seriously. Just a few years ago, bribing foreigners was legal in much of Europe—and tax deductible. The WSJ says Americans have long complained Europe’s more lax attitude toward bribery constituted unfair competition.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.