Springtime Budget-Busters -- Savings Experiment
Kmart's 'Ship My Pants' Ad Sequel Promises 'Big Gas Savings'
AP reports that Countrywide Financial Corp (NYSE: CFC) lost $893 million in the first quarter. That $1.60 a share loss was not exactly what analysts had forecast -- they were looking for a profit of two cents a share.
Meanwhile the LA Times reports that Countrywide CEO Angelo Mozilo took in $10.8 million and cashed out $121.5 million in stock gains as his company got hammered by losses on sub-prime loans in 2007. Mozilo also enjoyed perks worth $176,513, including $44,454 in rides on the company's jet; $23,755 in automobile use; $8,581 in country club dues; and $31,238 in company-paid tax and investment advice. Mozilo faces an informal U.S. inquiry into his stock sales.
And Countrywide's financial condition is deteriorating fast. It set aside a $1.5 billion reserve to cover loan up 62% from $925 million in the fourth quarter of 2007. Moreover charge-offs totaled $606 million during the first quarter. Fortunately, Countrywide has an exit strategy. In January, Countrywide agreed to sell itself to Bank of America (NYSE: BAC) for about $4 billion in stock. The question is whether Bank of America will pull out of the deal now that it sees the rising costs it will incur if it moves forward. Since Countrywide trades 15% below that takeout price, the market has its doubts.
Investors don't seem happy with today's announcement -- the stock was down 5% in premarket trading.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 1 of 1)
4-29-2008 @ 10:37AM
JP said...
The Countrywide deal is also about CFC's bank deposits, which would give BAC a special edge over peers. Although they would incur losses today because of CFC's mortgage unit, BAC has a special opportunity to simply say mortgage losses is not a company-specific phenomenon.
The deal does, however, position BAC very well in the future to use meaningful boost in deposits to increase capital ratios and also drive more loan growth faster.
All financials today are still fundamentally overvalued since they don't have the huge profit drivers of CDO's and SIV's to drive up earnings. And with the situation at hand, i-bank monitors may be encouraging weaker credit derivative growth to prevent further leveraging in the shadow banking system. Financials have supercycles based on financial "innovation," like they did in the 20's, the 70's, and today. We're still moving lower from that peak, especially since investment banks will now be required sooner or later to have similar capital ratios as their commercial bank counterparts (and counterparties). Goldman Sachs, surprisingly, is likely the most overvalued today.
But in the long-run, BAC is pretty smart to take under CFC on a deposit growth standpoint, and what that means for loan growth.
4-30-2008 @ 2:43PM
PFD said...
Countrywide will continue to write down everything under the sun before BofA acquires them. In this way, the bad news will be behind them and it won't hurt the earnings of the combined company.