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Countrywide CEO: Mortgage Crisis Persists Despite BofA Stake

The chief executive of Countrywide Financial told CNBC that Bank of America's $2 billion investment in the struggling mortgage lender was a "priceless endorsement" for Countrywide but said the crisis in the housing and mortgage markets isn't getting any better.

"It's a great endorsement of Countrywide," CEO Angelo Mozilo told Maria Bartiromo in an exclusive interview. "It's important from our viewpoint that somebody of that caliber to give us the vote of confidence that was needed in this environment when everybody was in a panic and things were being said about Countrywide which weren't true."

But at the same time, the chief of the largest U.S. mortgage lender remains cautious towards the current state of the industry.

"This environment is certainly not getting better," he said. "Something tomorrow could turn it around, but this is a first step in series of steps we're going to take."

Bank of America announced late Wednesday it would invest $2 billion in Countrywide Financial, helping shore up the company's finances as it has struggled with a liquidity crunch this month.

The nation's second-largest bank said it would buy non-voting preferred stock that yields 7.25% and can be converted into Countrywide common stock at $18 per share, 17.5% below Countrywide's closing price Wednesday.

"For a long-term shareholder, this is the best deal that they can have," Mozilo said in the interview. "To put Countrywide back on a strong footing so we can move forward. Both companies win here in a very big way."

Mozilo said Bank of America contacted him and and "said they would like to help" the company he founded in 1969 with the help of a $75,000 Bank of America loan.

Bank of America announced its investment just six days after Countrywide stunned investors by tapping an entire $11.5 billion credit line due to difficulties selling short-term debt.

Bankruptcy Speculation 'Baseless'

This raised concerns about whether the Calabasas, Calif.-based company might survive the mortgage and credit crisis afflicting a wide range of U.S. lenders.

Mozilo criticized a Merrill Lynch analyst report published earlier this month, which said Countrywide could face possible bankruptcy if market conditions worsen.

"It was totally irresponsible and baseless and affected the lives of 61,000 lives here at Countrywide and it was all caused by that individual at Merrill Lynch," Mozilo said.

The company is no closer to bankruptcy now, he said, than it was six months or six years ago.

"What doesn't kill you makes you stronger and we're a much stronger company today than we were a couple of weeks ago," he said. "A lot of what is driving this is a lack of confidence, it's panic. This is one of the greatest panics I've seen in 55 years financial services. Something has to be done to restore the confidence the market."

Housing Woes Could Lead to Economic Recession?

Mozilo said he continues to believe the housing downturn will take the U.S. economy into a recession.

"I still think so, I've been proven wrong so far," he said. "But I can't believe when you're having the level of delinquencies, foreclosures … that this doesn't have a material effect on the psyche of American people and eventually on their wallet."

"It seems to me, I don't see a light here at the moment," Mozilo added. "Something could happen that could change that overnight, but it appears to me we've got a way to go to work our way through."

Shares of Countrywide surged at the start of trading, opening with a gain of 10%, but pared gains by about 1.5% following Mozilo's comments regarding the housing industry. Bank of America shares traded slightly higher.

Citigroup research analyst Bradley Ball said the deal was a "win-win situation" and reiterated a "buy" rating on Countrywide Financial.

COUNTRYWIDE SHAREHOLDERS

Shareholder
Stake
Bank of America 16%
Axa Sa 11%
Legg Mason 8.7%
Barclays Global Investors 8.5%
Source: CNBC

"The upshot is that the Bank of America capital infusion and confidence boost helps support Countrywide's viability during this challenging mortgage market liquidity crisis," Ball wrote in a report sent to clients Thursday. "This should enable Countrywide to continue to play a leadership role during the U.S. mortgage market's return of normalcy."

The analyst said an outright acquisition of Countrywide by Bank of America was unlikely to materialize in the near term.

In January, before the mortgage crisis surfaced, Charlotte, N.C.-based Bank of America was the subject of speculation it might buy or enter a joint venture with Countrywide. Lewis at the time said "we're not particularly interested in the wholesale and correspondent business."

The impetus behind the $2 billion investment and the bank's longer-term goals were not immediately clear.

"Eventually I think they'd be looking to acquire the whole firm," said Ganesh Rathnam, a Morningstar analyst who covers Bank of America. "I don't see why they would otherwise buy $2 billion into it."

COUNTRYWIDE TIMELINE

August 15 Merrill downgraded Countrywide to 'sell'; warned of bankruptcy
August 16 Countrywide taps $11.5B of emergency credit lines
August 22 Countrywide Gets $2 billion investment from Bank of America

Bank of America probably could not acquire Countrywide outright for a while. The bank's pending acquisition of LaSalle Bank from ABN AMRO would push it up against a 10% federal cap on deposits. Buying the operator of Countrywide Bank would probably push it over.

Goldman Sachs and law firm Wachtell, Lipton, Rosen & Katz advised Countrywide on the transaction. Bank of America was advised by its own investment bankers and law firm Cleary Gottlieb Steen & Hamilton.

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