The FBI is probing whether Countrywide Financial (NYSE: CFC) committed securities fraud by making false statements about the mortgage bank's deteriorating financial position.
The Wall Street Journal (subscription required) reports that a "potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide's losses may be several times greater than it has disclosed."
Aside from the potential civil and criminal issues at stake, the investigation could kill the takeover of Countrywide by Bank of America (NYSE: BAC). It is not clear whether the mortgage company can make it as an independent operation if the big bank withdraws it offer. If auditors and the government determine that CFC losses are much greater than represented, it might drive the mortgage firm into insolvency.
The Bank of America deal is probably the only way that Countrywide shareholders can get any money for their shares. The company's stock has dropped from a 52-week high of $42.24 to just above $5, which is not much above its 52-week low.
The news reports of the FBI probe is likely to push shares lower. If new, significant losses have to be reported, the price of CFC's stock may go to zero.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
3-09-2008 @ 6:08PM
daan battista said...
did anyone notice a clintinista is involved with this company...henry cisneros...admitted to lying to investigators, then pardoned by clintin-horn...its interesting how these banking swindles get passed on from election to election..and so little is done about it...did he actually buy the stock he sold..or was it a payoff (gift)!
3-10-2008 @ 12:58PM
jerry longville said...
It's about time that someone figures out who is behind predatory lending and the mortgage crises. It's the financial institutions and backed by the greedy realty companies.