Countrywide Shares Soar; CEO Confirms SEC Probe
Countrywide Financial Chief Executive Angelo Mozilo on Friday said the U.S. Securities and Exchange Commission has opened an informal inquiry into his stock sales, confirming previous reports, and that he and the company are cooperating.
The statement came the same day the company posted a $1.2 billion third-quarter loss, while its shares soared after the largest U.S. mortgage lender forecast a return to profit this quarter and said it has weathered the worst of the nationwide housing downturn.
Mozilo has realized more than $100 million of gains in the last year since he began selling shares on a regular basis last October, just as the U.S. housing market was cresting. He later accelerated the pace of those sales twice.
Mozilo said "categorically" that "at no time" did he make any trading decisions based on material, nonpublic information, and said he "fully complied" with all Countrywide policies and applicable securities laws.
Shares of Countrywide surged as much as 24.7 percent on growing investor confidence the company can regain equilibrium after a mortgage crisis that some critics say it helped create.
The outlook helped push broader stock market indexes higher.
Countrywide's quarterly net loss totaled $2.85 per share. It was the company's first in 25 years, and reflected about $2.9 billion of write-downs and credit losses. A year earlier, profit totaled $647.6 million, or $1.03 per share.
The company wrote down $1 billion related to capital market disruptions. It set aside $934.3 million for credit losses, up 2,359 percent from a year earlier, as more borrowers fell behind on payments, particularly on adjustable-rate and home equity loans. Other credit costs totaled $981 million.
"They took their medicine decisively," said Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller.
Countrywide also took a $57 million charge for an expected loss of 10,000 to 12,000 jobs. It expects $70 million to $90 million of additional restructuring charges.
Analysts on average expected a loss of $1.65 per share, according to Reuters Estimates.
Results reflected "unprecedented disruptions in the U.S. mortgage market and the global capital markets, as well as continued weakening in the housing market," Chief Executive Angelo Mozilo said in a statement.
Countrywide shares were up $1.82, or 13.9 percent, at $14.89 in morning trading, after earlier rising to $16.30.
Through Thursday, the shares were down 69 percent this year. They have fallen 40 percent since Bank of America on Aug. 22 injected $2 billion to shore up its finances. Scott Silvestri, a bank spokesman, declined Friday to comment.
Third-Quarter was "Earnings Trough"
Countrywide said the third quarter represented an "earnings trough." It projected fourth-quarter profit of 25 cents to 75 cents per share, and a profitable 2008, with a 10 percent to 15 percent return on equity. It also said it has negotiated $18 billion of "highly reliable" new liquidity.
"There was so much negative sentiment that a whiff of anything positive would help the stock," said Stuart Plesser, a Standard & Poor's equity analyst.
"It still has to worry about liquidity, though it has improved. A big concern remains how much it may need to set aside for credit losses in the future. That will depend largely on housing prices."
Calabasas, California-based Countrywide joins many other financial companies to report write-downs for subprime and other mortgages, including Citigroup , Merrill Lynch and Washington Mutual .
To cope with the housing downturn, Countrywide has stopped making many risky loans, and has focused on smaller but less profitable loans that Fannie Mae and Freddie Mac will buy. It has also shifted most lending to its bank unit, allowing it to tap a wider array of funding sources.
S&P credit analysts downgraded Countrywide one notch to "BBB-plus," a low investment grade, citing the weak housing market and potential for more loan losses in 2008.
Pre-tax losses totaled $1.31 billion in mortgage banking, $407 million in banking and $344 million in capital markets.
Insurance operations generated a $150 million profit.
Critics fault Countrywide for being in part responsible for the housing slump by extending credit too readily earlier in the decade, in the pursuit of profit and market share.
Members of Congress are proposing legislation to weed out excesses in the $2.3 trillion U.S. mortgage industry, and give new rights to borrowers stuck with unaffordable loans.
Countrywide, for its part, this week offered to refinance or modify $16 billion of adjustable-rate mortgages to help borrowers struggling to make payments as rates reset.
Mozilo, who co-founded Countrywide in 1969, faces growing calls to step aside from shareholders. He has also been under fire for accelerating the sale of his Countrywide shares as the housing market was cresting, realizing more than $100 million of gains. The U.S. Securities and Exchange Commission is reportedly examining these sales. Mozilo has denied wrongdoing.
CtW Investment Group, which represents union pension funds, last week demanded the removal of Mozilo, and is seeking shareholder input on board seats. It did not immediately return a request for comment.