Analysts surveyed by Thomson Financial expect Countrywide Financial (NYSE: CFC) to post a much smaller profit for the first quarter, while Archer Daniels Midland (NYSE: ADM) is expected to report a profit gain. Both companies are scheduled to report results Tuesday morning.
Countrywide Financial is expected to earn two cents per share, which is down 97% from the same period in 2007 when it earned 72 cents per share, but that swings from a loss of 79 cents per share in the most recent quarter. However, the company tended to fall short of earnings estimates even before the credit crunch set in; that fourth-quarter loss of 79 missed estimates by 163%.
Formerly one of the top residential mortgage lenders, California-based Countrywide Financial is being bought out by Bank of America (NYSE: BAC). In the past year, Countrywide's revenues were $24 billion, and its net income is in the red to the tune of $703.5 million. Not surprisingly, the consensus recommendation of analysts remains to hold CFC.
The stock has fallen 84.9% in the past year and closed Monday at $5.83.
Countrywide Financial's (NYSE: CFC) corporate governance satire worthy of Gilbert & Sullivan continues with the release of the company's proxy statement.
CEO Angelo Mozilo's pay package dropped 79% -- to $10.8 million. Worse, president and COO David Sambol and managing director Andrew Gissinger III did not even come close to meeting the company's insider stock ownership guidelines -- which worked out well for them given the company's precipitous decline in value.
Just for laughs, here's an excerpt from the company's executive pay philosophy pulled directly from the proxy statement:
Pay for Performance. Our compensation programs are intended to motivate our named executive officers to achieve a superior level of performance in the diversified financial services industry. The amount of compensation for each named executive officer is intended to reflect the executive's experience, his or her individual performance and the performance of the Company. Several of our compensation programs are expressly tied to performance of the Company or the named executive officer, including our annual incentive awards program and our equity awards program. In general, our compensation is heavily weighted toward performance-based pay, and we seek to balance incentives for both short-term and long-term performance.
Here's my question. If you're a Countrywide director reading this, feel free to respond in the comment section: When you're stock declines from over $40 to under $10, how can your CEO earn $10.8 million under a pay-for-performance philosophy?
Perhaps Countrywide has a sense of humor, and the description of executive pay was meant to be ironic. But the company's shareholders probably aren't laughing.
Countrywide (NYSE: CFC) CEO Angelo Mozilo, perhaps the most reviled executive in corporate America, will get $10 million as part of a Bank of America (NYSE: BAC) takeover of the mortgage broker. Investors and members of Congress are incensed. The "bonus" is described in SEC filing as "performance based." Countrywide shares are down from $42.24 to $5.63 over the past year.
One powerful senator may go after the payment. "It's perverse for Bank of America to reward the principal architects of the bad business practices that caused this housing crisis,'' said Sen. Charles Schumer, D-NY, said in a statement, according to the AP. Perhaps shareholders will get lucky and Schumer will fight the pay-out of the money.
It is a shame that Bank of America would hurt its own reputation by doing this. Countrywide was available for sale because it was in such deep trouble. BAC did not need to "pay off" Mozilo to get a deal done.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Countrywide Financial, AstraZeneca, Massey Energy and International Coal were today's noteworthy upgrades:
Wachovia upgraded Countrywide (NYSE: CFC) to Market Perform from Underperform, as they do not expect any other bidders to emerge and for the acquisition by Bank of America (NYSE: BAC) to close.
HSBC upgraded AstraZeneca (NYSE: AZN) to Overweight from Neutral on valuation and their belief that an agreement with Ranbaxy on Nexium is possible.
Massey Energy (NYSE: MEE) and International Coal (NYSE: ICO) were upgraded to Neutral from Underweight at JP Morgan citing higher coal price forecasts.
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.
It's all very confusing. SRM Capital Management's Jonathan Wood has blastedBank of America's (NYSE: BAC) deal to acquire Countrywide Financial (NYSE: CFC) as being grossly inadequate. Legg Mason Value Trust's legendary manager Bill Miller agrees.
And yet the stock isn't doing anything to suggest a better deal is coming. In fact, Wall Street has serious questions about whether the deal will close at all. With credit market worries showing few signs of subsiding, Countrywide shares are trading at discount of more than 20% to the value of the deal -- an unusually large arbitrage spread indicating that investors have their doubts about the deal's future.
Over on SeekingAlpha, Richard Shinnick wonders why Bank of America is doing this deal: "Why are you saving Countrywide? Why take this risk? You can build your own national mortgage network! In fact, you already have one! Why do you need this? What are you thinking?"
I agree, and also question the value of Countrywide's national mortgage network. The company has spent nearly 40 years building a strong network and brand, but you have to think that, financial woes aside, the hugely negative press attention has hurt the company's image. I would argue that the Countrywide name has such a negative connotation as to be worthless. As Warren Buffett has said, "It takes 20 years to build a reputation and 5 minutes to ruin it."
SRM Capital Management head Jonathan Wood has been slamming Bank of America (NYSE: BAC)'s deal to acquire Countrywide Financial (NYSE: CFC) for more than a month now, but with shares of the target company still trading at nearly a $2 discount to the buyout price, investors appear too skeptical that Wood will make any progress. Analysts at Friedman Billings Ramsey and Stifel Nicolaus have suggested [subscription required] that if there is any revision in the deal's price, it would likely be a downward move.
The crux of Mr. Wood's argument seems to be that Bank of America "should pay a price closer to Countrywide's book value, currently $22 a share," according to the Wall Street Journal.
The problem is that Countrywide's book value is overstated and will have to weather future writedowns. It isn't like Countrywide is sitting on a huge cash pile. In addition, the company has tons of future liabilities: shareholder lawsuits, investigations, even exceptionally rare lawsuits filed by bankruptcy trustees accusing the company of "sustained bad faith."
Countrywide's struggles have been front-page news for over a year -- Bank of America hardly snuck in and negotiated a back-room with an unknown entity. Wood can complain all he wants but I don't see anyone stepping forward with a better offer.
Mozilo, who is CEO of troubled lender Countrywide Financial (NYSE: CFC), is eligible to receive stock awards valued at $10 million this April. The awards consist of performance-based restricted stock units and stock-appreciation right and will vest upon the consummation of Bank of America (NYSE: BAC)'s acquisition of the company.
The fact that Mozilo sold hundreds of millions of dollars worth of stock at prices 5 times the current price raises questions about whether he really need to be compensated further.
But that's not the worst of it. Chief Operating Officer David Sambol could receive a $1.9 million retention bonus upon completion of the merger.
The purpose of a retention payment is to keep an executive from jumping ship to another more lucrative opportunity. But I've got to ask: Given that Countrywide is the poster child for idiotic lending, bad management, and poor corporate governance, is Mr. Sambol really that in demand that a $1.9 million retention payment is necessary. Or is this just more of the "loot the company while you still can!" stuff that has come to characterize the descent of Countrywide?
The SRM Global Master Fund LP has acquired a 5.2% stake in Countrywide Financial (NYSE: CFC), and wrote in a 13-D filing that it believes that Bank of America's (NYSE: BAC) deal to acquire the company is inadequate: "Based on publicly available information, the Reporting Persons are of the view that the Merger Agreement does not provide sufficient value to holders of the Issuer's Common Stock."
SRM may have a point -- The Bank of America deal values Countrywide at just over 1/3rd of its currently stated book value, but that could be a moving target based on the likelihood of future writedowns.
But with Countrywide making daily headlines with its troubles, its stock was hardly an unknown entity at the time of the Bank of America deal -- If a better option had been available, you have to think Countrywide would have taken it. Although with a board of directors that is reminiscent of, to borrow a line from Dave Ramsey, Gomer Pyle on steroids, anything is possible at Countrywide.
According to The Wall Street Journal, (subscription required), analysts speculate that the uncertainty surrounding certain potential liabilities for the company -- lawsuits and investigations -- may have swayed Countrywide to accept the offer.
I'm going to go out on a limb and guess that absolutely nothing will come of SRM's argument.
If Countrywide Financial (NYSE: CFC) faces any more suits, Bank of America (NYSE: BAC) may have to withdraw its offer to buy the mortgage lender. The legal bills will be too high.
New York City, which has already filed one set of legal actions against the company, has expanded that to include a number of officers, directors, and underwriters. The city, in a statement picked up by Reuters, said executives of Countrywide Financial "cashed out to the tune of almost $700 million" while borrowers lost homes and the value of investors' shares fell sharply. The new action named "additional company officers and directors, 26 underwriters, and two accounting firms."
The city is overreaching. A suit against the company and CEO Angelo Mozilla might, just might, hold some water. He may have known that the subprime mortgage market was facing problems that would hurt his company. It will probably be hard to collect facts that can show he acted with that intention.
But, to demonstrate that a number of individuals and institutions acted on the same information about upcoming trouble in the markets would require proving a massive fraud.
New York City ought to stick to a case it can make.
Douglas A. McIntyre is an editor at 247wallst.com.
With Congress already planning hearings on the grotesquely excessive pay packages handed to executives who lost massive amounts of money on bad subprime loans, Senator and presidential candidate Hillary Clinton has jumped on the Countrywide Financial (NYSE: CFC) CEO Angelo Mozilo bashing bandwagon.
Senator Clinton called Mozilo's pay package "outrageous", adding that Mozilo is "one of the principal architects of this whole house of cards, with these exotic subprime mortgage vehicles ... Executives of a lot of these companies that participated in creating this very difficult set of problems we're trying to work our way out of should not be rewarded ... as they walk away,"
In addition, Congressman Barney Frank and other have called on Mr. Mozilo to donate a portion of his generous severance package to aid subprime borrowers facing foreclosure.
Wow! I truthfully never thought I would see a story about lenders walking away from home equity loans [subscription required] rather than foreclosing on the home, but the Wall Street Journal reports that several banks are doing just that. Instead of foreclosing the home, mortgage companies which provided borrowers with equity lines or second mortgages on the property are walking away, writing off the loss and just leaving a lien on the property with the hope that some day in the future, when the house is sold or the owners want to refinance, they'll get their money.
Lenders that told the Journal they were writing off the loan rather than foreclosing include Bank of America (NYSE: BAC), Countrywide (NYSE: CFC) and Washington Mutual (NYSE: WM). Why would they just walk away? With home prices dropping, even if they did foreclose, they probably wouldn't get much or any money out of it anyway. Many of these homeowners owe more on the house than its worth. Only lenders with the first mortgage are likely to get any money by forcing a foreclosure.
Moody's estimates that losses on home-equity loans outstanding as of June 30, 2007 could ultimately total $58 billion on top of the $278 billion in losses on mortgages. "You can make a horrible decision by choosing to foreclose, " Steve Baily, a senior managing director with Countrywide, told the Journal.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
Countrywide Financial is expected to earn two cents per share, which is down 97% from the same period in 2007 when it earned 72 cents per share, but that swings from a loss of 79 cents per share in the most recent quarter. However, the company tended to 
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I've been banging the drum on Angelo Mozilo's 
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