May 5 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. bank, should abandon its takeover of Countrywide Financial Corp. because the mortgage lender's loans may be written down by as much as $30 billion, Friedman, Billings, Ramsey & Co. said.

Analyst Paul Miller cut his rating on Countrywide to ``underperform'' from ``market perform'' and lowered his price target to $2 a share from $7, according to a note today from the Arlington, Virginia-based company.

``Bank of America should completely walk away from the Countrywide deal, as Countrywide's loan portfolio will prove a drag on earnings and could force Bank of America to raise additional capital,'' Miller wrote.

Countrywide's credit rating was cut to junk on May 2 by Standard & Poor's, which cited doubt about whether Charlotte, North Carolina-based Bank of America will back the home lender's debt after a pending takeover. The action squelched expectations among bond owners that their holdings would become more secure after Bank of America buys Countrywide, and raised questions about whether the $4 billion stock-swap will be completed.

Countrywide dropped 69 cents, or 12 percent, to $5.29 at 10:44 a.m. in New York Stock Exchange composite trading. Bank of America fell 53 cents to $39.26.

Bank of America spokesman Scott Silvestri declined to comment. Countrywide spokeswoman Jumana Bauwens didn't return a telephone message.

Quarterly Losses

Bank of America agreed in January to buy Calabasas, California-based Countrywide and has named the lender's president, David Sambol, to run the companies' combined mortgage businesses. Countrywide posted an $893 million deficit in the first quarter, its third straight quarterly loss, because of rising losses on its loan portfolio.

Bank of America considered likely declines in home prices and risks from lawsuits when it decided to make the purchase, Chief Executive Officer Kenneth Lewis said at the company's April 23 annual meeting. Several investors asked him to call off the Countrywide purchase at that meeting.

``Countrywide's loan portfolio has deteriorated so rapidly that Countrywide currently has negative equity and the acquisition will be a drag on Bank of America's earnings,'' Miller said in today's report.

Bank of America in an April 30 regulatory filing said it may not guarantee $38.1 billion of Countrywide's debt, fueling speculation that bondholders face a higher risk of default. ``There is no assurance that any such debt would be redeemed, assumed or guaranteed,'' the bank said, adding that no decision had been reached.

The statement ``just means we haven't made a decision,'' spokesman Silvestri said last week.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: May 5, 2008 10:53 EDT