Countrywide sees rebound ahead after posting loss
CHARLOTTE -
The company that provides one out of every five US mortgages will earn 25 to 75 cents a share in the fourth quarter and will be profitable in 2008, according to a company statement. The Calabasas, Calif.-based company had a $1.2 billion loss in the third quarter.
Countrywide lost 59 percent of its market value this year in what chief executive Angelo Mozilo called the worst housing market since the Great Depression. Profit at the high end of Countrywide's predictions would be 26 percent below the results from a year earlier.
The losses "were not as bad as market participants anticipated," said Peter Plaut, an analyst at Sanno Point Capital Management LLC, a New York hedge fund that doesn't currently own Countrywide shares. "The company is viewed as a survivor within the midst of the credit-market turmoil."
The stock price jump was the biggest one-day surge since 1982, and Countrywide was the biggest gainer in the Standard & Poor's 500 index.
The loss per share was $2.12, or $2.85 including effects of new convertible preferred stock, compared with profit of $647.6 million, or $1.03 a share, in the same period of 2006.
President David Sambol called the third-quarter loss "an earnings trough." For 2008, return on equity will range from 10 to 15 percent, Countrywide said, without giving data on the actual profit.
The company reported a $1 billion writedown on the value of loans and securities, citing "a severe lack of liquidity." Countrywide also boosted its provision for loan losses to $934 million, more than triple the level of June 30, citing more overdue payments by customers with home equity and "pay-option" adjustable-rate mortgages.
"They have drawn a line in the sand and they are looking for the fourth quarter to be profitable," said Vince Arscott, an analyst in New York at Fitch Ratings.
Estimates for future defaults and charge-offs of bad loans increased because housing markets continued to deteriorate, credit remained tight, and late payments are still rising, the company said.
Kenneth Bruce, the
"Buying the stock seems too optimistic, in our view, given an uncertain housing market and capital markets backdrop," he said in a report yesterday.
The company had to tap $11.5 billion in emergency credit in August after cash ran short. Countrywide said it has since lined up $18 billion of "highly reliable" funds.
Loan production recorded a pretax loss of $1.32 billion, compared with a profit of $281 million a year earlier. Total loans funded fell 15 percent to $90.4 billion. The company blamed weak markets where mortgages that aren't backed by government-sponsored agencies are traded. The capital markets unit's pretax loss was $344 million, compared with profit of $141 million a year earlier.
The company is in the middle of cutting 10,000 to 12,000 jobs because of the drop in loans. The firings caused a $57 million charge in the quarter, with another $70 million to $90 million coming mostly in the fourth quarter, the statement said.
Mozilo, 68, confirmed he's facing an informal US inquiry into his stock sales. Mozilo has sold more than $280 million of Countrywide shares during the past two years, while exercising options valued at $65.8 million, The Washington Service, which tracks trading by executives, said on Oct. 9.
