Countrywide profit down 33 pct, slashes outlook
NEW YORK (Reuters) - Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender, posted a 33 percent decline in quarterly profit Tuesday and slashed its 2007 forecast as more homeowners fell behind on payments.
Profit missed Wall Street estimates and the reduced forecast was Countrywide's second in three months. Countrywide shares fell 10.5 percent, their biggest percentage decline since October 2004.
The results suggest that rising delinquencies and defaults are spreading beyond "subprime" borrowers, who have weaker credit histories, to "prime" borrowers thought to be better lending risks, including many with home equity loans.
"This is a huge battleship, and we're headed in the wrong direction," Chief Executive Angelo Mozilo said on an analyst conference call, referring to the housing environment.
He said it may be 2009 before the market recovers from oversupply, stagnant home prices, and increasingly lax lending standards that left many borrowers overstretched.
"Nobody saw this coming," Mozilo, a 54-year mortgage industry veteran, said on the nearly three-hour call.
Countrywide said second-quarter net income fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15, a year earlier, its third consecutive quarterly profit decline. Revenue fell 15 percent to $2.55 billion, although mortgage loan volume rose 19 percent to $123.1 billion.
Analysts on average expected profit of 81 cents per share on revenue of $2.9 billion, according to Reuters Estimates.
"SOBERING"
Calabasas, California-based Countrywide set aside $292.9 million for bad loans, up from $61.9 million a year earlier and took a $388 million write-off for prime home equity loans.
It cut its 2007 earnings forecast to between $2.70 and $3.30 per share, below the average Wall Street forecast for $3.65. Countrywide had forecast $3.80 to $4.80 in January, and cut that to $3.50 to $4.30 in April. Profit in 2006 was $4.30 per share.
"The numbers are pretty sobering," said Stuart Plesser, a Standard & Poor's equity analyst with a "hold" rating on Countrywide. "The issue is not whether Countrywide survives the housing tailspin, which it should, but when the housing market starts to show some strength. It won't be in 2007."
Countrywide shares closed down $3.56 at $30.50 on the New York Stock Exchange, their lowest since October 2005. The KBW Mortgage Finance Index .MFX fell 4.5 percent. Countrywide shares are down 28.2 percent this year, while the KBW index is down 17.1 percent.
BROADER FALLOUT
Countrywide joined other large mortgage lenders in reporting higher credit losses, including Wells Fargo & Co (WFC.N) and Washington Mutual Inc (WM.N).
David Sambol, Countrywide's chief operating officer, said the market is in an "overdue correction."
Other companies are also suffering from the housing slump.
Building materials maker USG Corp (USG.N) on Tuesday said the housing industry is entering the second year of a likely multiyear downturn. Meanwhile, DuPont Co (DD.N) Chief Executive Charles Holliday said the chemical company assumes no improvement in North American housing until "well into 2008."
At Countrywide, quarterly pretax profit from mortgage banking fell 49 percent to $319.6 million as revenue slid 18 percent.
Countrywide has tightened its lending guidelines and, like many rivals, stopped making some of the more exotic subprime loans that have triggered many defaults. Just 4 percent of second-quarter volume was subprime.
The company now expects to make $420 billion to $500 billion of loans this year, down from its prior forecast for $450 billion to $550 billion.
In banking, pretax profit fell 60 percent to $128.9 million as credit losses rose more than sixfold. Pretax profit fell 31 percent in capital markets but rose 11 percent in insurance.
"Credit performance has surfaced as a bigger risk factor than we expected," wrote Morgan Stanley analyst Kenneth Posner.
(Additional reporting by Jennifer Coogan, Michael Erman, Euan Rocha and Al Yoon)
