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Funny Business
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It's been a long year. One year ago, on August 9, 2007, Countrywide filed its 10-Q after the bell. It was the first inkling of the "Year From Hell," which is entering its second year. Problem is, no one seemed to see what was coming.
The Countrywide quarterly report back then included the following statements which I now call "The Beginning of the End":
"In view of current unprecedented market conditions, we are accessing other pre-existing funding liquidity sources, procuring new sources and accelerating the integration of our mortgage company with the Bank."
"While we believe we have adequate funding liquidity, the situation is rapidly evolving and the impact on the Company is unknown."
"We also believe that the challenges facing the industry should ultimately benefit Countrywide as the mortgage lending industry continues to consolidate."
Over the weeks and months that followed, Countrywide would borrow $11.5 billion, get $2 billion more from Bank of America[BAC
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], report its first loss ($1.2 billion), its CEO would vow to return to profitability by the end of 2007, and as late as December 3rd Angelo Mozilo was insisting bankruptcy wasn't likely. Within weeks, BofA bought the company.
So, what did analysts say during this time, the people investors depend on for advice?
On August 10, 2007, after the Countrywide 10-Q came out, Fox-Pitt, Kelton upgraded Countrywide stock to a "Buy" with a $45 price target.
On that same day Merrill Lynch suggested people "buy on the dips." But by August 15th, Merrill had downgraded the stock to a "Sell", floating the "b" word--bankruptcy. Eight days later, on CNBC (see clip below), Angelo Mozilo said that call was "irresponsible." But on October 26th, after Countrywide reported its massive loss and promised profitability, Merrill upgraded the stock to "Neutral," saying, "We think CFC will likely remain range bound at the current level." The stock dove 17 percent within a week.
Bank of America, which would soon inject billions into the company and eventually buy it, said in a note on August 17, 2007: "We believe that the sheer mass of Countrywide, as well as its significant deposit base, makes it unlikely that regulators would let CFC fail...from a near-term perspective, we remain comfortable with CFC's funding profile."
Lehman had an "Equal Weight" on the stock ("Fears of liquidity seem to be easing some"), until late October, when it was lowered to "Underweight." "Management's optimistic comments notwithstanding, we remain concerned that we could be in the early stages of a significant housing recession, if not depression."
Citigroup was one of the most upbeat, maintaining a "Buy/High Risk" on Countrywide for months as the share price tumbled.
Citi on August 14, 2007: "We still believe that CFC's $46 billion in 'highly reliable' funding should help them through this difficult time, and market consolidation should lead to a strong position in the future."
Citi on September 13, 2007: Countrywide's August numbers "not that bad." Citi on October 28, 2007: "We continue to believe that CFC will survive in the current mortgage crisis."
Well, you could argue the company did survive. It sold itself to save itself.
Video: Angelo Mozilo on Aug. 23 of last year saying Merrill's call that Countrywide could go into bankruptcy was "irresponsible."
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