October 24, 2007 / 8:04 PM / 12 years ago

Countrywide's moment of truth arrives

NEW YORK (Reuters) - Countrywide Financial Corp CFC.N, a poster child for what has and is thought to have gone wrong in the U.S. mortgage industry, will have a chance when it reports results on Friday to show skeptical investors what it can do right.

The Countrywide bank is seen in Lakewood, Colorado, September 11, 2007. REUTERS/Rick Wilking

The largest U.S. mortgage lender is expected to report a third-quarter loss that analysts say could range from about $700 million to $1.8 billion, according to Reuters Estimates.

It would do so amid growing calls for Chief Executive Angelo Mozilo to step aside, as politicians bestirred by soaring defaults among constituents talk of weeding out excess in a $2.3 trillion mortgage industry.

“It’s going to be very hard to put a positive spin,” said Guy Cecala, publisher of the newsletter Inside Mortgage Finance in Bethesda, Maryland. “The market wants certainty. It wants to know when the tide of losses will end, what Countrywide is doing to minimize losses, and how it will survive.”

Calabasas, California-based Countrywide said it cannot discuss operations ahead of results, citing a quiet period.

Mounting delinquencies in subprime and even prime loans, and falling demand from investors to buy loans, are expected to cause large write-downs. Investors grew gloomier after Merrill Lynch & Co MER.N on Wednesday took a $7.9 billion write-down for mortgages and other debt, far more than expected.

“The market will be focused on the held-for-investment portfolio at the bank, how credit trends are developing, and how the bank is reserving for losses,” said Blake Howells, an analyst at Beckers Capital Management in Portland, Oregon, which invests $2.6 billion and owns Countrywide shares.

Results are expected to include a charge of up to $150 million for the elimination of 10,000 to 12,000 jobs.

Shares of Countrywide started the year at $42.45, but have fallen about two-thirds. On Wednesday, they touched $13.47, a level not seen since March 2003. They are down about a third since August 22, when Bank of America Corp (BAC.N) injected $2 billion and shored up Countrywide’s finances.


Countrywide now presents a gentler face after being faulted for making loans that people couldn’t afford. It has reached agreement with longtime critic Neighborhood Assistance Corp of America to help struggling borrowers restructure loans. On Tuesday, it set plans to modify $16 billion of mortgages.

“Unprecedented times call for unprecedented remedies,” Chief Operating Officer David Sambol said in a statement.

But the days of making nearly one in five U.S. mortgages may be over. Countrywide now focuses on smaller, safer loans, and has said loan volume may fall 25 percent in 2008. It slid 44 percent in September.

“The next step, particularly if it gets much smaller, is to talk about a merger,” Cecala said.

A Bank of America spokesman declined to comment. Mozilo told Reuters on August 23: “We’ve gone it alone for 40 years, and can go it alone for another 40 years.”

Job security for Mozilo is also an issue. He is under contract through 2009, when he will be 71, but some shareholders want or expect him to leave sooner.

Mozilo has been under fire for speeding up sales of his Countrywide shares, realizing well over $100 million of gains. The U.S. Securities and Exchange Commission is reportedly examining these sales. Mozilo has denied wrongdoing.

“Ironically, Mozilo couldn’t leave five or six years ago when he wanted to, because the market felt he was the face of Countrywide,” Cecala said. “That has changed. He’s still the face of Countrywide, but one many want to get rid of.”

Howells said: “It might create positive sentiment for the stock if there were a change in leadership.”

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