The Wall Street Journal is speculating that Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) may want to buy some of the units of mortgage company Countrywide Financial (NYSE: CFC). That assumes, of course, that they come onto the market in a sale. "Countrywide's assets, including its debt-servicing business and its portfolio of high-quality mortgages and mortgage-backed securities" may be of interest to Buffett, the paper writes.
The article is simply an exercise in speculation using Mr. Buffett's past investment in firms like Salomon Brothers as examples of what the billionaire might do. But, beyond that, the story does not have much substance.
And Countrywide may have nothing to auction. According to Reuters, Countrywide, "which is being closely monitored by U.S. regulators, took full-page advertisements in Monday editions of The New York Times and other newspapers to tell readers that mortgage market problems do not affect the safety of federally insured deposits at its Countrywide Bank unit." It is hard to imagine a large public company making such a statement in advertisements if it did not feel confident about the statement.
Countrywide may cut back on lending, but it appears to be a long way from selling itself off in pieces.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
8-21-2007 @ 4:40PM
Bill said...
Some people really believed this.
Let's recap.
1. Foreclosures at record levels (even in NY)
2. House prices falling
3. Sub-prime lending all but vanished
4. Higher interest rates for jumbo loans
5. Tougher credit criteria for prime borrowers
6. CFC tapping into the lifesaver credit lines to maintain liquidity
7. Few investors willing to take loans from CFC's books
8. Customers threatening with lawsuits for predatory lending
I would say that Countrywide has not yet bottomed...
Buffett generally invests in well established companies that have a stable business, good reputation and need little if any, re-structuring.
Countrywide could be a good target for a private equity firm... at $7-9 per share.
8-21-2007 @ 5:26PM
Sheldon L said...
Bill,
I agree with your premis but not your facts. I do not think Buffett will have an interest in a bank. He is more likely to expand his insurance empire. However, the original Berkshire Hathaway company was a big time turn around requiring restructuring. More recently he bought Fruit of the Loom out of bankrupcy, for 30 cents on the dollar and turned that around. He got a major brand at a great discount and felt it was worth the effort. There are more examples. Countrywide is not his type of deal but he does have a history, especially early on, of doing some "workouts".
8-21-2007 @ 7:21PM
zonker said...
Seriousely - does Buffett want to buy a company that has just recently tapped a credit line of $10.5B ?
How much is the "real" debt of CFC ?
I think forclosures will increase - value of stock will decrease ...
Some analysts say the CFCs book value is $7, so why should he consider to buy @ $22 or even more ? If I'd be him I would deny the speculation and let the stock bottom to it's real value and then go in.
So many questions and many reasons NOT to buy this company. Could it be that some fund manager want to get rid of this stock ?
8-22-2007 @ 5:49PM
Brian Bednarik said...
We all know Mr. Buffett makes sure he's completely well-informed about all of his investments, and even with this possible deal that seems liike a bust I can still assure you he knows what's goiing on with Countrywide. http://www.newsvisual.com/newsvisual/2007/08/berkshire-hatha.html
This article shows he has some people on his board of directors he know first hand some of Countrywides board. I bet they would love to sell off some assets and debt, but Buffett wouldn't buy unless he knew the whole picture, which he very well could with these connections.