Countrywide: Lemming Investors actually believe Mozillo
Countrywide reported a $1.2 billion loss for Q3 and negative revenue of nearly $50 million, however, the company expects to return to profitability in Q4 and the shares have surged as a result. I’ll go into more detail over this later, but considering the weak balance sheet and the rapidly escalating loan defaults , what exactly are people getting excited over? Just because CFC “says” they’ll be profitable in Q4 doesn’t magically erase their core problem of people not being able to pay their mortgages. Countrywide has been saying that things are going to get better for several months now, yet things continue to get worse, so who in their right mind takes them seriously anymore?
Better yet, who takes CFC seriously when you also factor in their ineffective loan modification programs , the number of ARMs on the books and the number of delinquent negative amortization loans they’ve originated over the past couple of years. Not to mention the borrowing of money to finance a stock buyback (in late 2006) when they should’ve strengthened their balance sheet, the suspicious stock sales by their CEO, etc, etc. This company is in trouble and whilst its sheer size will probably help it to survive, pretending that profitability is around the corner and effectively calling a market bottom is patently fatuous.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article.
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