Countrywide Financial said the U.S. housing slowdown and increased mortgage delinquencies caused fourth-quarter profit to decline 3%, falling short of forecasts.
The largest U.S. mortgage lender also said it faces a "challenging" year in 2007, and projected a range of earnings per share that falls mostly below the average analyst forecast.
Fourth-quarter net income for the Calabasas, California-based company fell to $621.6 million, or $1.01 a share, from $638.9 million, or $1.03 a share, a year earlier.
Analysts on average projected profit of $1.03 a share, according to Thomson Financial.
Revenue rose 6% to $2.76 billion, while expenses rose 12% to $1.77 billion.
The company made $121.9 billion of mortgage loans in the quarter, down 9%, and pretax profit from servicing loans tumbled 97% to $9 million.
Countrywide also projected profit per share of $3.80 to $4.80 for 2007, compared with the average $4.74 forecast compiled by Thomson.
Chief Executive Angelo Mozilo said results reflected a tough environment in which home prices and sales declined, margins fell, and delinquencies and foreclosures increased. He said 2007 "will likely be the trough year of the current housing cycle."
Mozilo said Countrywide has also "made progress" in plans announced in October to lay off more than 2,500 employees to help slash annual costs by more than $500 million. Countrywide
originates about one in six U.S. residential mortgages.
SERVICING PROFIT SLIDES
Shares of Countrywide had risen nearly 8% since Thursday after a Financial Times report said the company was in talks with Bank of America that could lead to a
joint venture or merger, citing people close to the matter.
The report said a joint venture might involve the sale of Countrywide's mortgages through Bank of America branches.
Countrywide said quarterly pretax mortgage banking profit rose 4% to $453.3 million, despite the decline from servicing.
Servicing profit fell $9 million from $306 million, despite 17% growth in the servicing portfolio to $1.3 trillion.
Results were hurt by higher interest expenses and a $215 million drop in the value of mortgage servicing rights, or fees expected from collecting payments from borrowers. The latter
resulted from changes in spreads and higher delinquencies, Countrywide said.
Pretax profit also rose 4% in banking, while it declined 25% in capital markets and 27% in insurance.
Countrywide shares are up 27% in the last year, compared with a 2% gain in the KBW Mortgage Finance Index.