Countrywide Financial denied market speculation it might seek bankruptcy protection, but its shares suffered their biggest decline since the 1987 stock market crash on growing concern the largest U.S. mortgage lender's problems will deepen.
Shares of other mortgage-related companies also slid, including lender IndyMac Bancorp and bond insurers MBIA and Ambac Financial Group.
After traders reported rumors of a possible Countrywide bankruptcy, the company issued a statement that "there is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company."
The rumors followed a New York Times article citing court recordsit said showed that the Calabasas, California-based lender fabricated documents related to the bankruptcy of a Pennsylvania borrower.
Like many U.S. mortgage lenders, Countrywide has struggled with the nation's housing slump. Falling home prices and tight credit markets have led to soaring defaults and write-downs of
home loans stuck on lenders' books industrywide.
Countrywide has said it has enough liquidity to operate. Chief Executive Angelo Mozilo on Oct. 26 said Countrywide would earn 25 cents to 75 cents per share in the fourth quarter,
after losing $1.2 billion in the third quarter. He also said he expected Countrywide to survive the credit crunch.
Some analysts aren't convinced Countrywide is out of the woods, though the lender now specializes in smaller home loans that mortgage financiers Fannie Mae and Freddie Mac
will buy that may be less susceptible to default.
"With forecasts for home price declines, home sales and recession continuing to worsen on a daily basis, the outlook for Countrywide worsens relative to management's recent guidance," Lehman Brothers Inc analyst Bruce Harting wrote. He said Countrywide's loan credit quality may not stabilize and profitability may not recover until 2009 at the earliest.
Harting rates Countrywide "underweight," and cut his forecast for fourth-quarter profit to 20 cents per share from 26 cents. Analysts, on average, expect a profit of 12 cents per share, according to Reuters Estimates.
Bank of America Corp injected $2 billion into Countrywide last August, in exchange for what could be a one-sixth stake in the company.
Countrywide later set plans to lay off as many as 12,000 employees, or one-fifth of its workforce. It is expected to disclose December mortgage lending activity as soon as Friday,
and to report fourth-quarter results later this month.