In its earnings report released for the fourth quarter Countrywide Financial (NYSE: CFC), the nation’s leading mortgage lender, revealed along with a $422 million loss that fully one-third of its subprime mortgage loans are delinquent. The loss is 79 cents a share, compared with the year-earlier quarter which saw a profit of $1.01 a share, or net income of $622 million. The delinquency rate of 33% is a further erosion from last quarter’s 29.6% delinquency rate.
The continuing credit crisis for Countrywide is also evident in that these delinquencies had not yet been written off, so there is the feeling among observers that there are more bad loans waiting to be written down as these are loans that Countrywide has been unable to sell or securitize.
This quarter’s results are nominally better than the last, however, in terms of losses, as last quarter’s record $1.2 billion in the third quarter occurred when the extent of the subprime problem began to more fully emerge. The stock price has been chopped from a year-ago high of $45 a share to just over $6 in current trading, though it has fallen as low as $4.25.
On January 11, Bank of America (NYSE: BAC) agreed to buy Countrywide, and Monday valued the company at $4.3 billion. This is $7.16 a share, and though there had been talk that Bank of America would want the deal re-priced, they have denied this. After Tuesday’s earnings announcement, Bank of America reiterated its desire to participate in the deal and maintained it would not be deterred by this latest earnings report revealing the further delinquencies. BAC CEO Kenneth Lewis was quoted by Bloomberg as saying, “Everything’s a go,” on the deal. BAC shares have been trading in the mid-40 range, with a 52-week high of 54.21 and a low of 33.12.
Observers have taken note that Countrywide was extremely slow to give analysts a heads up on the third quarter loss, when CEO Angelo Mozilo tried to reassure the market after the catastrophic quarter that Countrywide would return to profitability as soon as the current quarter. That did not happen, Bank of America has stepped in, but investors are left wondering what’s still on the books of Countrywide that they may yet learn.
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