Countrywide Shares Jump after Securing Financing
Countrywide Financial, the largest U.S. mortgage lender, said Thursday it has lined up $12 billion of financing to help weather a housing slowdown that will lead to widespread layoffs.
Shares of Countrywide rose as as much as 14.38 percent in late Thursday afternoon trade on the New York Stock Exchange -- their biggest one-day gain in more than seven years.
The company said it recently lined up the secured financing through new or existing credit facilities. On Aug. 16, it had drawn down $11.5 billion from credit lines because it was unable to sell short-term debt to fund regular operations.
Calabasas, Calif.-based Countrywide also said it had funded $34.4 billion of mortgage loans in August, the fewest this year and down 17.3 percent from a year earlier, as it tightened lending standards. Daily applications fell 11.8 percent to $2.33 billion. Countrywide's pipeline of mortgages being processed fell 16.8 percent from July to $51.8 billion.
Countrywide's success in finding new sources of capital "should substantially address funding concerns," Credit Suisse analyst Moshe Orenbuch wrote. "As origination volumes and mortgage pipeline decline over the coming months, we expect the stress on its funding needs should subside significantly."
Representatives of Countrywide did not immediately return requests for further comment.
Through Wednesday, the stock had fallen 60.8 percent this year as defaults rose, home prices stopped increasing and investors grew unwilling to buy many kinds of home loans.
On Friday, Countrywide said it would fire up to 12,000 employees, or about 20 percent, by December. Analysts said deeper cuts are possible. Staffing in August fell to 60,867 from July's 61,586, the year's first monthly decline.
Companies have announced well over 50,000 mortgage-related job cuts this year. On Wednesday, Memphis, Tenn.-based First Horizon National announced 1,500 layoffs, mainly in mortgages, while Seattle-based Washington Mutual announced 1,000 mortgage-related job losses.
Countrywide this summer stopped making home loans that don't meet its own banking unit's investment criteria, or which aren't eligible to be securitized by such entities as Fannie Mae and Freddie Mac.
Less than 4 percent of Countrywide's home loans in August were subprime, or intended for people with weak credit.
Last month, Countrywide received a $2 billion infusion from Bank of America, which could eventually give the second-largest U.S. bank a one-sixth stake in the lender.
On Wednesday, U.S. Treasury Secretary Henry Paulson urged Countrywide Chief Executive Angelo Mozilo and other mortgage officials to help borrowers who took out adjustable-rate loans whose rates are resetting to higher levels.
Mozilo co-founded Countrywide in 1969, and his employment contract runs through 2009, when he will be 71. Critics have faulted him for taking too much lending risk and for cashing in tens of millions of dollars of stock options in 2006 and 2007.
On Tuesday, employees sued Countrywide and Mozilo, saying the company's failure to warn of its deteriorating financial health cost them millions of dollars of retirement savings.
Sen. Charles Schumer (D-N.Y.) has accused Countrywide of steering borrowers into costly home loans they cannot afford in the pursuit of maximum profit.
"Now that Countrywide is having success obtaining credit, the onus is even greater on them to clean up their act," he said in a statement.
Chief Operating Officer David Sambol said in a statement on Thursday that Countrywide was confident it will be a "long-term beneficiary" of current market conditions.
The annual cost to insure $10 million of Countrywide bonds for five years fell about $35,000 to $305,000, an investor said, indicating that investors see less risk.