Countrywide Says `Unprecedented Disruptions' May Hurt Profit
By Steve Dickson
Aug. 10 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, said it faces ``unprecedented disruptions'' that may crimp profit, suggesting a credit crunch that started with the U.S. subprime market will spread.
Countrywide won't be able to sell as many of its loans as expected because investor demand has dried up, the Calabasas, California-based company said in a filing with the U.S. Securities and Exchange Commission. It also said it may have difficulty obtaining financing from creditors. Shares of the company fell as much as 13 percent in after-hours trading.
``The secondary market and funding liquidity situation is rapidly evolving, and the potential impact on the company is unknown,'' Countrywide said. ``These conditions may continue or worsen in the future.''
Investors have stopped buying loans made to the riskiest borrowers, leaving hedge funds, banks and securities firms unable to find accurate prices for their holdings. BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds yesterday because it couldn't ``fairly'' assess the value of subprime mortgage holdings. Banks roiled by the crisis are shifting assets into cash, prompting the European Central Bank to loan them an unprecedented 94.8 billion euros ($130 billion) yesterday.
Washington Mutual Inc., the biggest U.S. savings and loan, said yesterday in its own filing that liquidity in the market for mortgages made to borrowers below the top credit grade had ``diminished significantly.''
Earnings Forecast
Last month, Countrywide cut its 2007 earnings forecast after net income tumbled 33 percent as an increasing number of borrowers fell behind on home-equity loan payments. At least 70 mortgage companies have halted operations or sought buyers since the start of 2006, according to data compiled by Bloomberg.
Shares of Countrywide, which have lost a third of their value this year, fell to $25 in late trading from $28.66 at yesterday's close in New York Stock Exchange composite trading.
``We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,'' Countrywide Chief Executive Officer Angelo Mozilo said during a conference call with investors last month. He said it would take all of next year for the mortgage market to ``turn this battleship around'' before demand rebounds in 2009.
Amber Cousins, a spokeswoman for Countrywide, didn't return a call seeking additional comment on the filing.
Countrywide's allowance for credit losses was $531.1 million as of June 30, almost double the amount on Dec. 31, it said in the filing.
More Consolidation
Countrywide again assured investors that it has enough cash to cope with a credit crunch and said it may benefit as the industry's capacity shrinks. The company said earlier this week that it had access to $186.5 billion at mid-year.
``The challenges facing the industry should ultimately benefit Countrywide as the mortgage lending industry continues to consolidate,'' the company said in the filing.
Still, Countrywide said it was no longer trying to sell $1 billion of subprime mortgage loans and would instead hold them as investments ``for the foreseeable future.'' The loans now have a value of about $800 million, Countrywide said.
Bids for subprime mortgages, rated as the most likely to default, became scarce in March as overdue payments headed for their highest level since 2002. Now buyers are shunning Alt-A loans, an alternative for people with good levels of credit who don't otherwise meet all the standards for prime loans.
Loan Losses
Mozilo, 68, has tightened standards for approving loans to Countrywide's riskiest borrowers as part of a plan to cut subprime lending to as little as 4 percent of total mortgages, half the level at the end of last year.
Now he must address an increase in missed payments for prime loans, or those granted to borrowers with good credit histories. The company set aside $292.9 million for loan losses in the second quarter, compared with $61.9 million a year earlier, as it earmarked $181 million for prime home-equity loans.
Countrywide accounts for almost a fifth of all mortgages made in the U.S. The company revised its forecast of new loans to $420 billion to $500 billion this year, from $450 billion to $550 billion predicted in April. It extended $123.1 billion in new loans during the second quarter, 15 percent more than a year earlier.
Profit fell for a third straight quarter in the three months ended June 30. Net income in the second quarter dropped to $485.1 million, or 81 cents a share, from $722.2 million, or $1.15, a year earlier.
To contact the reporter on this story: Steve Dickson in New York at sdickson1@bloomberg.net . |
