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Countrywide insisted Jan. 8 it wasn't headed for Chapter 11, a rumor that sent its stock down precipitously. Indeed, as analysts said Jan. 9, Countrywide may be too big for bankruptcy or in the interest of lawmakers to be kept afloat or merged. Media reports then indicated Jan. 10 BofA, which pumped $2 billion into Countrywide in August, was in talks to buy the lender. A statement in its own defense earlier in the week, as The Deal's Peter Moreira pointed out, offered "the latest twist in the story of the company's subprime problems, the largest U.S. mortgage lender reassured the market that it actually saw an improvement in its business in December over the previous month." The company, however, has also unveiled its foreclosure and late-payment rates rose steeply in December.
As concern continued Jan. 9, Countrywide shares continued their free fall. They have tumbled from above $45 apiece in January 2007 to below $5 per share on the afternoon of Jan. 9. Moreira wrote that the selloff was triggered by a report indicating court records show Countrywide fabricated documents related to a borrower's Pennsylvania bankruptcy case, but the company issued a statement denying a bankruptcy filing was imminent. Countrywide said it posted better-than-expected fourth-quarter fundings and a gain in December over November, but the company has also revealed the foreclosure rate for its mortgages doubled to 1.44% from .7% a year earlier. Late payment rates rose to 7.2% from 4.6%. Moreira wrote:
Back in October 2007, The Deal's Ron Orol cautioned that if labor union American Federation of State, County, and Municipal Employees could have the same influence over Countrywide as it did over Home Depot Inc., its chief executive Angelo Mozilo could be forced out, especially if a serious activist hedge fund were to join the cause.
As Orol explained, Nardelli's shareholder disenfranchisement led activist Ralph Whitworth to take interest in Home Depot, and the CEO ultimately steeped down. As far as Countrywide goes, the Calabasas, Calif., company reported a $1.2 billion loss for its third quarter, drawing fire from Ferlauto, who has described Mozilo as "credibility challenged," and called for the mortgage company to find new leadership. ANOTHER STEP TO NEW STRATEGY In September, Countrywide unveiled a new plan for weathering the downturn in the mortgage sector, saying it would double its 112 existing national branches. The company was betting the new branches, opened over four to six months, would bring new deposits to help it transition to fund new and existing mortgages. At Bank of America's 37th annual investment conference in San Francisco on Sept. 18, Mozilo stressed that his company was gravitating to a more diverse model with more branches as well as stricter lending standards for its future mortgages. The company says it would require higher credit scores, boosting appraisal requirements and shifting toward a higher concentration of mortgages that can be purchased by Fannie Mae, Freddie Mac and similar buyers. Mozilo highlighted that his company had also reversed a tide of withdrawals in August by jittery customers because of news of the companies financial woes to growing deposits. REFOCUSING Countrywide announced Sept. 13 that it arranged for $12 billion in additional secured borrowing through new and existing credit facilities. The money gives the bank the flexibility to weather the storm of this mortgage downturn. The mortgage lender did not reveal the source of the loans and for what terms. The mystery behind those terms could be another big liability that Countrywide may pay dearly for in the future. The New York Post reported Sept. 11 that Countrywide was working on a financial bailout -- orchestrated by investment bank Goldman Sachs Group Inc. and law firm Wachtell Lipton Rosen & Kratz -- the same team that helped it out a month earlier. The pair was helping Countrywide formulate a package similar to the one it secured in August from BofA, according to the Post. The newspaper suggested J.P. Morgan Chase & Co., Citigroup Inc. and select hedge funds could be involved with the bailout. On Aug. 22, BofA pumped $2 billion into the company, acquiring convertible, nonvoting preferred stock, yielding 7.25%, to solidify Countrywide's balance sheet. But the infusion of cash didn't prevent French financial services company AXA SA from slashing its Countrywide stake. An SEC filing revealed Sept. 10 that an investor group affiliated with AXA cut its stake in Countrywide in August to 23.8 million shares, or 4.1% of outstanding shares, from 63.8 million shares, or 10.7% of outstanding stock. CUTBACKS With the mortgage business significantly slower than the go-go days of the housing boom, Countrywide said Sept. 7 that it was cutting 12,000 jobs, or 20% of its work force. The eliminations will occur "in areas most impacted by lower mortgage market origination volumes," the company said. Only a day earlier, Countrywide said it would cut 900 positions. And with all the pain the lender has withstood lately, its stock has seen a steady decline.--Gerald Magpily and Carolyn Murphy
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