Nov. 20 (Bloomberg) -- Bank of America Corp.'s $2 billion investment in Countrywide Financial Corp., the biggest U.S. mortgage lender, has lost almost half its paper value as Countrywide fell amid speculation it may file for bankruptcy.

Charlotte, North Carolina-based Bank of America, the biggest U.S. bank by market capitalization, made the preferred-stock investment in August to help bail out the lender amid the global credit rout that cut off its access to short-term financing.

Bank of America has the right to convert the preferred stock to common shares at $18 each. If the preferred shares had been swapped for common stock at the mortgage lender's high of $24.46 on Aug. 23, the first day of trading after the deal was announced, Bank of America would have made a $700 million paper profit. Countrywide also agreed to pay dividends of 7.25 percent on the preferred shares.

Instead, Countrywide's shares have tumbled, leaving Bank of America's investment down $858 million, data compiled by Bloomberg show. Countrywide fell 29 cents to $10.28 today in New York Stock Exchange composite trading as the lender denied speculation it will seek protection from its creditors. The shares have lost about 76 percent this year.

Scott Silvestri, spokesman for Bank of America, declined to comment. Bank of America's shares fell 5 cents to $42.77 in New York Stock Exchange trading today. Bank of America shares are down about 20 percent this year.

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: November 20, 2007 17:15 EST