August 21, 2007 / 7:38 PM / 10 years ago

Countrywide rises on Warren Buffett speculation

By Jonathan Stempel

NEW YORK, Aug 21 (Reuters) - Shares of Countrywide Financial Corp CFC.N rose as much as 11.5 percent on Tuesday on speculation Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) (BRKb.N) might buy part of the largest U.S. mortgage lender.

The gain occurred after The Wall Street Journal, citing unnamed investors, said Berkshire might be interested in acquiring Calabasas, California-based Countrywide’s debt servicing business and high-quality mortgages. Countrywide shares have lost half their value this year as delinquencies and foreclosures have increased, leading to a shortage of credit needed to make new home loans.

Analysts have said co-founder and Chief Executive Angelo Mozilo, 68, may need to reduce lending until capital markets liquidity improves. Last week, Countrywide tapped an $11.5 billion credit line, causing many worried customers to withdraw deposits from its banking unit. The company placed advertising in several newspapers on Monday to assure depositors their money was safe.

“Countrywide has generated good returns on equity over a significant period of time,” said Steven Check, who invests $525 million at Check Capital Management Inc. in Costa Mesa, California, including 24 percent in Berkshire and 3 percent in Countrywide. “Buffett would have a lot of respect for what Angelo Mozilo put together. This is his baby. He would not want to sell it to a big bank, but rather be a painting in Buffett’s museum.” Rick Simon, a Countrywide spokesman, said the lender doesn’t discuss market speculation about mergers and acquisitions. Berkshire was not immediately available for comment. Buffett has said repeatedly he does not publicly discuss his investments. Shares of Countrywide were up $1.79, or 9 percent, to $21.60 in afternoon trading on the New York Stock Exchange, after earlier rising to $22.09. They began the year at $42.45.

$47 BILLION CASH

Buffett has lamented his inability to deploy Berkshire’s cash hoard, which totaled $46.95 billion as of June 30. The company owns more than 70 businesses and has some $100 billion of stock and bond investments.

Berkshire has long listed several criteria of an ideal purchase, including large amounts of pretax earnings, consistent earnings power, good returns on equity with little or no debt, solid management in place, and simple businesses.

Buffett has said he would sell some investments to get higher returns elsewhere. The Journal article said he might be interested in leveraged buyouts that might be imperiled because the acquirers can’t sell the debt necessary to fund them.

    “I don’t see him on a hunting expedition to buy Countrywide or anyone else, because good deals will come to him,” said Frank Betz, a principal at Carret/Zane Capital Management LLP in Warren, New Jersey, which invests $800 million and owns Berkshire shares.

    “He may be having a look” at Countrywide, Betz added. “There are many opportunities in mortgages, even in depressed debt, and lenders are not all going into bankruptcy.”

    Check added that Countrywide shares trade below their June 30 book value, though Check said the value has likely fallen. “If Buffett felt comfortable with long-term industry fundamentals, it would be a steal to buy Countrywide at book value,” he said.

    Berkshire’s Class A shares fell $700 to $120,000 in afternoon trading. The share price is high because there are few shares outstanding.

    ((Editing by Gerald E. McCormick; Reuters Messaging: jon.stempel.reuters.com@reuters.net, 646 223 6317)) Keywords: COUNTRYWIDE SHARES/ . Keywords: COUNTRYWIDE SHARES/

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