Countrywide Gets Big Cash Infusion And May Survive Crisis
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If it seems ever harder to keep track of the companies that have either stopped
subprime lending or alt-a lending or all mortgage lending or have gone out of
business altogether, well, that's because it is harder and harder. The numbers
are dizzying; according to MSNBC - and this was on Monday, the number of companies
who now fall into one or more of those categories has topped 120 this year.
Several more big lenders joined the junk pile this week but there was a piece
of good news for the nation's largest mortgage lender which
managed to survive a very tough couple of weeks and now appears capable of living
to fight another day.
First the most recent casualty count.
Late Monday Capital One Financial announced it was closing
its wholesale mortgage business, putting 1,900 employees on the street. Capital
One wrote mortgages through its GreenPoint Mortgage division which it acquired
a scant eight months ago when it purchased North Fork Bancorporation for $13.2
billion in cash and stock.
Capital One closed 12 of GreenPoint's operation centers and some branch
offices in June, laying off 440 employees. A spokesman for GreenPoint said at
the time that her company was not a subprime lender but rather a specialist
in low-and-no documentation Alt A loans.
The most recent purge will cost Capital One about $860 million or $2.15 a share
in after-tax charges. The company is better insulated than most mortgage lenders
because its cornerstone is a huge and hugely profitable consumer (credit card)
lending business. Its stock is currently trading at $66.46 per share down from
its 52-week high of $83.84.
On Tuesday Accredited Home Lenders announced it would no longer
make new loans and was laying off 62 percent of its employees.
The Accredited situation was more complicated than most. The company had agreed,
before the subprime carnage reached its current level, to be acquired by Lone
Star Funds for $400 million. Lone Star said last week it would not go through
with its $15.10 per share buyout because of "a drastic deterioration in
the financial and operational condition of the company."
Accredited has sued Lone Star to compel its performance on the takeover. The
company had earlier admitted that its survival was in doubt and that it might
have to file bankruptcy. Accredited stock was trading at $6.20 on Thursday.
Its 52-week high was $37.15.
On Wednesday, as reported elsewhere on this site, Lehman
Brothers announced it was shutting down its subprime lending unit, BNC
Mortgage with the loss of 1,200 jobs at 23 locations nationally.
But then, late Wednesday, came some good news. Countrywide Financial
Corporation was snatched from the edge by Bank of American Corporation
which invested $2 billion in the nation's largest mortgage lender. Bank of America
said it would buy non-voting preferred stock that yields 7.25 percent and can
be converted into Countrywide common stock at $18 per share, 17.5 percent below
the shares' Wednesday closing price.
Bank of America's CEO Kenneth Lewis said, "We hope this investment
will be a step toward a return to a more normal liquidity in the mortgage markets.
In the current turmoil the stock market has been underestimating the value in
Countrywide's operations and assets."
Some analysts are speculating that total acquisition of Countrywide
may be in Bank of America's plans.
Countrywide had suffered through a tough couple of weeks as its stock slid
and its survival looked increasingly in doubt.
The company had to drain an $11.5 billion loan facility from 40 banks last
week and said it was planning to funnel most of its mortgage origination through
its bank. But then, in spite of its FDIC insured status, many customers began
to withdraw funds from Countrywide's bank after the company confirmed
and accelerated earlier plans to funnel most of its mortgage originations through
the bank. For a while there were fears of a full-scale run on the bank.
Moody's downgraded the company's debt from A3 to Baa3, the lowest
investment grade, and hinted the rating might go down even further, taking Countrywide
into junk bond territory. Wachovia, however, upgraded Countrywide from under
perform to market perform based on the infusion of Bank of America money.
Countrywide was trading at $23.25 late Thursday morning, up $1.43 from Wednesday's
close. The stock has traded as high as $45.26 this year.
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