Countrywide profit falls 37 pct, cuts forecast

NEW YORK Thu Apr 26, 2007 2:12pm EDT

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NEW YORK (Reuters) - Countrywide Financial Corp. CFC.N posted a 37 percent decline in first-quarter profit on Thursday and cut its 2007 earnings forecast as the largest U.S. mortgage lender struggled with rising subprime home loan defaults.

Profit and revenue fell short of analysts' forecasts. The quarterly earnings decline was Countrywide's second straight and its largest since the fourth quarter of 2004.

Much of the shortfall stemmed from home loans to people with weaker credit. The subprime sector has suffered as home prices rise more slowly and delinquencies and defaults surge.

Countrywide's overall mortgage banking profit slid 82 percent, and the company set aside $152 million for credit losses, more than twice the $63.1 million of a year earlier.

"Subprime is tough right now," said Thane Bublitz, an analyst at Thrivent Financial for Lutherans, which invests $70 billion. "But Countrywide has a full spectrum of lending operations, so it is not as reliant on subprime as other lenders that have gotten in trouble. It will be a survivor."

Net income for Calabasas, California-based Countrywide fell to $434 million, or 72 cents per share, from $683.5 million, or $1.10, a year earlier.

Revenue fell 15 percent to $2.41 billion, though mortgage lending increased 9 percent to $115 billion and the company's mortgage market share rose above 18 percent.

Analysts on average expected profit of 77 cents per share on revenue of $2.51 billion, according to Reuters Estimates.

Countrywide expects to earn $3.50 to $4.30 per share in 2007, down from its January forecast for $3.80 to $4.80. Analysts expect $4.00. Profit was $4.30 per share in 2006.

RAPID INDUSTRY CONTRACTION

Dozens of subprime lenders have sold their businesses, quit the industry, or gone bankrupt in the last year.

On a conference call, Countrywide Chief Executive Angelo Mozilo said the company should benefit from the weeding out of weak rivals, including many that had "irresponsible" loan standards.

The consolidation has been "more rapid than I've ever seen, and steeper than I've ever seen," he said. "As a result, you have less competition ... and rational competition."

Also on Thursday, another California mortgage specialist, Pasadena's IndyMac Bancorp Inc. NDE.N, said quarterly profit fell 34 percent to $52.4 million, or 70 cents per share. But it said the first or second quarter may be its earnings "trough." IndyMac has a 3.9 percent mortgage market share.

Meanwhile, Friedman Billings Ramsey Group Inc. (FBR.N) of Arlington, Virginia, an investment bank, said writedowns at its First NLC Financial Service subprime unit contributed to a quarterly loss of $185.9 million, or $1.08 per share.

In afternoon trading on the New York Stock Exchange, Countrywide rose 75 cents, or 2 percent, to $38.47; IndyMac rose $1.54, or 5 percent, to $32.51; and Friedman Billings fell 10 cents, or 1.7 percent, to $5.78.

NO SPILLOVER

Countrywide said pretax profit from mortgage banking totaled $100.3 million as revenue fell 25 percent.

The company lost $33 million from selling subprime loans it made and $69.1 million from servicing loans, though its servicing portfolio grew 17 percent to $1.35 trillion.

Countrywide has tightened its lending guidelines, and in March stopped making some no-down-payment subprime loans. Just 7 percent of first-quarter loans were subprime, and Countrywide expects the rate to fall as low as 4 percent this quarter.

The company said it nevertheless expects to boost market share, and is now fetching better prices for loans it sells.

"There has not been any material impact or spillover into (our near-prime or) prime business" from subprime problems, Chief Operating Officer David Sambol said on the call. "If anything, spreads have tightened and demand has increased."

In other areas, Countrywide said pretax profit fell 16 percent in banking and 15 percent in capital markets. Insurance profit nearly tripled.

Among other lenders, Wells Fargo & Co. (WFC.N) on April 17 said quarterly mortgage revenue jumped 90 percent though credit losses rose. The same day, Washington Mutual Inc. (WM.N) posted a $113 million loss from home loans.

Through Wednesday, Countrywide stock was down 11 percent in 2007, compared with a 6 percent fall in the KBW Mortgage Finance Index .MFX.

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