FYI | Aug 23 2007
By Greg Peel
Countrywide – America’s biggest non-bank mortgage lender – has become the poster child of the credit crisis. Despite having minimal exposure to subprime loans, and extensive exposure to “jumbo” prime mortgages, Countrywide’s share price has been trounced throughout the life of this turmoil, rallying occasionally only to be trounced again.
Countrywide’s real nadir came last Thursday, when the company had to borrow US$11.5 billion from several banks just so it could stay in the business of selling home loans. There was no way the market was going to touch its paper, which it would normally issue as funding for its loans. There has been a real fear that Countrywide would go under.
Tuesday saw the shares bounce on rumours that investment guru and sqillionaire Warren Buffet was looking to take a stake, but Buffet denied the rumours. Three hours after the close of the stock exchange last night (this morning) however, Bank of America announced it had acquired US$2 billion of Countrywide preferred stock. The prefs have a coupon of 7.25% and are convertible into ordinary shares at US$18.
Countrywide shares bounced as much as 20% in after market trading, to US$26.25. Behind the bounce is expectation that BA might move to a full takeover, but reports suggest this won’t happen soon given BA is already in the process of buying LaSalle Bank from ABN Amro and would exceed the restriction on deposits. BA is America’s biggest holder of retail deposits.
BA had already shown interest in Countrywide as early as January, but at the time the CEO said he wasn’t all that interested in the wholesale business. It is, however, a lot cheaper now.