Countrywide Loses Most Since 1987 on Funding Wagers

Countrywide Loses Most Since 1987 on Funding Wagers

Jan. 8 (Bloomberg) -- Countrywide Financial Corp. dropped the most in two decades in New York trading on speculation that it needs cash to continue operating its mortgage business.

The country's largest home-loan lender pared its loss after denying speculation it will file for bankruptcy.

Countrywide shares declined the most since October 1987, losing $1.03, or 13 percent, to $6.61 in 1:46 p.m. New York Stock Exchange composite trading. Earlier, they tumbled 25 percent.

Investors drove Countrywide shares down 79 percent last year on concern the company was suffering from a cash shortage. The company tapped emergency credit lines and got a bailout from Bank of America Corp. as the worst housing slump in 16 years fueled bets that Countrywide might seek bankruptcy court protection.

Traders said Countrywide shares declined today on the prospect that tighter credit restrictions will drive the Calabasas, California-based company into Chapter 11.

``There is no substance to the rumor that Countrywide is planning to file for bankruptcy,'' spokesman Rick Simon said in a statement. Countrywide has said it has adequate liquidity to run its business and predicted in October that it will be profitable this year. The company posted its first loss in 25 years during the third quarter.

Credit-default swaps tied to Countrywide's debt soared to a record as investors demanded as much as 30 percent upfront and 5 percent a year to protect from a Countrywide default for five years, according to broker Phoenix Partners Group in New York.

Yesterday, investors were demanding 20 percent upfront and 5 percent a year. Contracts trade on upfront payments when the market sees a high risk of default.

Bank of America, based in Charlotte, North Carolina, slumped 2.5 percent to $38.92, the lowest since December 2003. It made a $2 billion preferred-stock investment in Countrywide in August, and has the right to convert those shares into common stock at $18 each.

BLOOMBERG

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Countrywide denies bankruptcy, but stock plunges

NEW YORK (Reuters) - Countrywide Financial Corp on Tuesday denied market speculation it might seek bankruptcy protection, but its shares suffered their biggest decline since the 1987 stock market crash on growing concern the largest U.S. mortgage lender's problems will deepen.

In late afternoon trading, Countrywide shares were down $2.03, or 26.5 percent, at $5.61 on the New York Stock Exchange.

Shares of other mortgage-related companies also slid, including lender IndyMac Bancorp Inc and bond insurers MBIA Inc and Ambac Financial Group Inc.

After traders reported rumors of a possible Countrywide bankruptcy, the company issued a statement that "there is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company."

The rumors followed a New York Times article citing court records it said showed that the Calabasas, California-based lender fabricated documents related to the bankruptcy of a Pennsylvania borrower.

Like many U.S. mortgage lenders, Countrywide has struggled with the nation's housing slump. Falling home prices and tight credit markets have led to soaring defaults and write-downs of home loans stuck on lenders' books industrywide.

Countrywide has said it has enough liquidity to operate. Chief Executive Angelo Mozilo on October 26 said Countrywide would earn 25 cents to 75 cents per share in the fourth quarter, after losing $1.2 billion in the third quarter. He also said he expected Countrywide to survive the credit crunch.

Some analysts aren't convinced Countrywide is out of the woods, though the lender now specializes in smaller home loans that mortgage financiers Fannie Mae and Freddie Mac will buy that may be less susceptible to default.

Countrywide denies bankruptcy, but stock plunges
Tue Jan 8, 2008 3:48pm EST Email | Print | Share| Reprints | Single Page | Recommend (0) [-] Text [+]
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" target="_blank">$0 stock trades. 10 free per month. "With forecasts for home price declines, home sales and recession continuing to worsen on a daily basis, the outlook for Countrywide worsens relative to management's recent guidance," Lehman Brothers Inc analyst Bruce Harting wrote. He said Countrywide's loan credit quality may not stabilize and profitability may not recover until 2009 at the earliest.

Harting rates Countrywide "underweight," and cut his forecast for fourth-quarter profit to 20 cents per share from 26 cents. Analysts, on average, expect a profit of 12 cents per share, according to Reuters Estimates.

Bank of America Corp injected $2 billion into Countrywide last August, in exchange for what could be a one-sixth stake in the company.

Countrywide later set plans to lay off as many as 12,000 employees, or one-fifth of its workforce. It is expected to disclose December mortgage lending activity as soon as Friday, and to report fourth-quarter results later this month.

REUTERS