The New York Post is reporting CountrySlide Seeks 2nd Bailout.

Countrywide Financial Corp. is putting together another multi-billion dollar bailout plan as the nation’s largest home lender continues to struggle amid the global credit crunch and declines in the housing market, The Post has learned.

Sources familiar with Countrywide’s plans said the lender continues to work with Goldman Sachs and law firm Wachtell Lipton Rosen & Katz to structure another strategic investment similar to the deal Bank of America struck last month.

It’s unclear at this point who exactly is involved in the investment, but sources said a group that could include J.P. Morgan and Citigroup as well as several hedge funds has expressed interest in Countrywide.

A final deal could be announced by the end of the month, sources said.

I am a bit suspicious of this reporting but if it’s true then Countrywide has already blown (or soon expects to have blown) the $2 billion it received from Bank of America. That first $2 billion was not a bailout per se, but rather a desperation act to raise cash by selling off huge chunks of the company. (Technically it was not a sale but rather an option on 16-17% of the company with the strike price then over $4 in the money)

Forbes was touting “Bank of America knows when it’s time to buy” but I questioned the bailout hypothesis in Countrywide Bailed Out by Bank of America? Things look a little different today, don’t they?

Countrywide (CFC) soared as high as $26 on news of the “bailout“. It’s now trading under $17. Not only that, Countrywide allegedly needs another cash infusion. So what’s it going to do? Offer options on another 16-17% of the company for another $2 billion. If so, the Bank of America (BAC) might not exactly be happy any longer with the terms it received.

And what if that cash infusion does not work? Will a third deal be needed? Hmmm. Let’s see. 16.5+16.5+16.5 = 49.5. Well I suppose Countrywide could fit in a third deal to give away shares for cash infusions and still marginally be the majority shareholder of itself, but the speed at which infusions are needed seem to be rather ominous.

Then again, maybe Countrywide is banking on its share price not being over $18 at the time the options expire. In that case Countrywide’s [current shareholders] retain full ownership instead of seeing massive dilution. Assuming of course Countrywide is still in business. If Countrywide really needs $2 billion cash infusions every month or even every third month, it won’t be.

Mish note: Minor changes were made on 2007.09.12 in the last paragraph to reflect it is shareholders affected by dilution should the options be exercised.

Mike Shedlock / Mish/