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Two Important Updates:
- Our friend Peter Viles at L.A. Land blog has a terrific time line of events in the Countrywide crisis.
- Paper Money has great insight in to what 11.5 billion looks like to Countrywide:
“To put the company?s current predicament into perspective a bit, for the month of July Countrywide reported that it had an average daily loan activity of $2.7 billion, so they have effectively bought themselves 4.25 days of operations at that level.“
In my post a few days ago I asked “Is Countywide the next Titanic?” I didn’t know; and I still don’t know if it is or not. But there has been a flurry of news about Countrywide over the last couple of days. Let’s take a look at some of it and see if we can distill it down at all:
- Yesterday Merrill Lynch analysts downgraded the Countrywide stock from a “buy” to a “sell” – that is a huge swing for analysts. They cited bankruptcy and liquidity concerns at the company that just overtook Wells Fargo as the #1 mortgage originator in the country.
- Brian Brady over at Bloodhound Blog calls for a federal bail out of Countrywide should the company crater.
- Over the past week Countrywide has been busy canceling thousands of residential loan applications that fall outside of guidelines. My sources told me that underwriters were more busy canceling files than approving new ones.
- Countrywide is also sitting on a $2 billion pool of residential mortgages that can’t find a buyer anywhere; their just holding the pool looking for someone to buy it, somewhere.
- Rumors of its commercial division paper rates jumping astronomically have been unfounded as of yet; but if commercial papers is indeed getting expensive it could signal difficulty in raising capital for large loan issuances.
- Today the stock tanks to below $20 a share (currently around $17.50) as news arises that the company tapped their entire $11.5 billion credit line to increase liquidity needed to fund ongoing operations. Not just some of their credit line – all of it.
I am revising my statement from the other day – you know the one about Countrywide being the next Titanic; its not severe enough in analogy. If Countrywide craters it will be to the mortgage industry what the meteor was to dinosaurs. If you’ve read my post on the tangled web of banking and read the comments you’ll see how tangled Countrywide’s web really is. A collapse of Countrywide would mean a collapse of a large portion of the mortgage industry; and then Jim Cramer would be right – we would have armageddon.
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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