Deadbeats Dog Countrywide
Andrew Farrell, 03.01.07, 4:08 PM ET
Countrywide Financial revealed Thursday that the rate of delinquencies of its subprime loans has nearly doubled from two years ago, making it less likely that the lender would be able to work out an alliance or amalgamation with Bank of America.
In its 10-K annual report form, filed with the Securities and Exchange Commission, Countrywide (nyse: CFC - news - people ) stated that 19.0% of its subprime mortgages -- home loans made to borrowers with less than pristine credit -- were delinquent in 2006. This was up from 15.2% in 2005 and 11.3% in 2004.
The new numbers didn't come as too much of a shock to investors, and Countrywide's shares fell only 90 cents, or 2.3%, to $37.44. Credit-quality problems have been expected at Countrywide and other lenders offering subprime loans because borrowers with low credit ratings have been defaulting at records rates. (See "Outlook For Subprime Lenders Seen As Tough".)
Analysts and investors had already prepared for the worst at Countrywide by cutting estimates and the stock. Analysts polled by Thomson Financial in mid-2006, predicted earnings of $5.00 a share for 2007 and $5.85 a share for 2008. By February, those analysts only saw $4.50 and $5.02, respectively. The company's stock, which traded over $45 about a month ago, is down nearly 15%.
But the stock has been shielded from further losses recently on speculation of a deal with Bank of America (nyse: BAC - news - people ). In January, the Financial Times said that Bank of America was in talks with Countrywide for an acquisition or a joint venture.
Bank of America Chief Executive Kenneth D. Lewis, however, seemed frosty on his interest at a later meeting with analysts. He indicated the bank did not want to increase its exposure to mortgage lending.
"In our assessment, a joint venture with or acquisition of Countrywide by Bank of America is unlikely," wrote Piper Jaffray (nyse: PJC - news - people ) analyst Andrew Collins in a previous client note. "Although Bank of America indicated that it likes the mortgage product, the company does not like the mortgage business." (See: "Deals Are Off And Galloping".)
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