Tuesday, January 08, 2008

Countrywide: Surely he must be dead by now.

This morning, rumors were rampant that Countrywide was to declare bankruptcy sometime this week. The company denied the rumors, saying in an e-mail to major media outlets: "I feel happeeeeeee!"

Here is what I find particularly interesting about today's market.

First, I'm not sure why a potential Countrywide bankruptcy should send the market reeling like this. You know when you and your friends start talking about old movies or old bands? Inevitably someone names some actor or musician and someone says, "I just saw him on TV the other day." And someone else says "He's still alive?" I kind of feel that way about Countrywide.

Second, didn't Countrywide claim they were going to post a profit in 4Q? It sounded doubtful to me when they said it, and its not like things have gotten better in the mortgage market since. Maybe they do manage to pull it off, and if so, that stock will surge. But I sure as hell ain't buying.

Third, here are the bid/ask levels I'm hearing for Countrywide bonds... (by maturity, in dollar price)

2/08 -- 90/92 (floater)
5/08 -- 82/84
4/09 -- 63/65
6/10 -- 61/63
3/11 -- 60.5/62.5
6/12 -- 60.5/62.5

Sounds like the market thinks the recovery is around 60c on the dollar eh?


Anonymous said...

> I'm not sure why a potential Countrywide bankruptcy should send the market reeling
like this.

Maybe because it's the 14th largest bank in the U.S.? (June, 2007)

> Sounds like the market thinks the recovery is around 60c on the dollar eh?

That's highly optimistic if the thrift unit is taken into receivership---unlike the 1980's, FDIC's claims now rank above all other claimants (1993 Depositor Preference Act) except collateralized creditors.

Anonymous said...

yes Mozilo did say that about this upcoming quarter. Unreal. Trust is now out the window at a time when stocks are about to break past lows we hit when credit crisis first surfaced in July/August/Sept...I think we hit 12,550 or so intraday.

How r banks going to make any money? How much bigger are these writedowns? What about alt-a, prime MBS holdings as defaults spread? What about helocs, credit cards, auto loans, option arms, cofi/cosi loans (which were getting hot last year), etc..This is a full blown DEBT crisis.

The game is over. Its going to be a rocky ride. GOLD & SKF..buy both on dips!

Anonymous said...

Don't forget that Countrywide is the nations biggest mortgage lender.All of its funding is now coming from the FDIC insured bank at rates that are higher than other banks but still cheaper than the rates they would have to pay otherwise. They have access to the FHLB,and the Fed's new funding auction. Also as prepayments slow the value of their huge servicing portfolio rises and can be sold off. They claim they are only doing conforming loans now.
Bankruptcy would be highly disruptive at the least. I would guess that the Fed will want to keep them afloat. Make money- no , but bankrupt- not likely.

Anonymous said...

By March, CW's servicing will be split up and "given...ie..receivership" to the largest and dare I say it... still profitable banks with excellent servicing units. Let's see..... BofA for one? Who cares about CW? At this point, I'm also asking, "There still around?"..

Anonymous said...

what are your thoughts on the US homebuilders? Surely not all will be default cases...(?) Would current spread on say, KB Homes be considered attractive?

Secondly, if I may ask: current news seems to suggest that the Bush govt may accelerate some fiscal spending and tax cuts. If so, would this be negative for the USD?

Thanks for sharing your blogs.


Unknown said...

what a difference a day makes:

so much for 60c on the dollar -- was just offered 16s @ $41 ...

at some point, BofA will probably dump MORE into the company or somehow just wind up with ownership of whatever businesses are still viable (servicing?)??

what do I know though, as a lowly govt bond strategist ... corps and stocks and things like this are outta my league! good ole return OF capital trend stays in place until 10yrs yield nearer 3.50% ... not so bold NOW but day after Xmas, we all had HUGE present under that tree -- 10s just above 4.25% ... ah, hindsight truly IS 20/20

Accrued Interest said...

I think the 16's are subs. Hearing the bonds are modestly weaker today. Stock lower too.

Steve: I thought that market had come to terms with a CFC bankruptcy. On the recovery, people might assume someone buys their servicing platform in bankruptcy court. I don't know.

Unfortunately for CFC, they have some good parts, like the servicing. But they have too much in crappy loans. Its a question of whether losses on bad loans will happen faster than revenue from servicing and new conforming originations.

Fred: Don't like home builders much, although I agree that not all with go under. There will be such a thing as a home building business in 2009 and onward.

Anonymous said...

If BofA wanted the large piece of the servicing portfolio that was bad, they would have injected more than 2 billion to secure their spot as #1 over other creditors. They get to cherry pick and apparently they have deemed $2billion of the portfolio and cross selling bank business worthy. They were the #1 originator of prime loans for 2007. They are just waiting for humpty dumpty to fall. Then they pick the sweet pieces up.

Anonymous said...

AI, what do you make of this from MBIA today..

"MBIA also marked the value of its CDO exposures to market, although this usually doesn't mean actual credit losses will occur. The company estimated a $2.1 billion after-tax mark-to-market loss from these exposures Wednesday. ""


Accrued Interest said...

I agree that anyone who wants a piece of CFC is probably waiting for BK, or at least some clarity.

MBIA's announcement today is just the kind of thing I expect to keep hearing from the bond insurers over the next 12 months. Its a question of whether they can stay ahead of losses or not.

Anonymous said...

accrued interest: people might assume someone buys their servicing platform in bankruptcy court.

Here's a thought. If the holding company files, their ratings go poof, and suddenly the thrift unit can't hold the escrow accounts. But the accounts can't be transferred, or the thrift goes into receivership. Alternately, the thrift goes first, and the pool escrows get reduced to $100K. I think the thing to watch for right now is whether trustees start pulling servicing from CW.

Anonymous said...

Steve Said:
I think the thing to watch for right now is whether trustees start pulling servicing from CW.

Unfortunately, due to a lack of clarity on the situation from CW, the trustees won't know what's going on until the public knows. I've told everyone I know to ask for their escrow money back if they can and if taxes,hazard,etc... haven't been been paid yet. It takes awhile to get your escrow money out of a BK and if there are any penalties due to lack of timely payment to counties, the homeowner is responsible.

Accrued Interest said...

Sounds like its all going to be moot. WSJ reporting that BofA is going to buy them. Bonds up ~20 points.

Its great news for the credit markets, at least short-term, because its a big bank saying it wants to remain in the mortgage business. Not that it changes the core problems of bad loans, but stuff like this is the foundations of an eventual recovery.

Anonymous said...

This shot gun style wedding has happened yet. It was either CW saying, "if you don't buy us, we'll file BK" to BofA and the fed. BofA runs into a quandry with the fact that they are bordering on having too much business in the US and regulators will make them close up some of the CW branches.

Anonymous said...

I smell bridge bank...

Anonymous said...

I second that smell. What does this do to the common stock? Price it zero?