Countrywide Financial Corp. (CFC) is fighting back. Just ahead of its third quarter results (due October 26 with expectations of a loss of $3.47 a share, according to an analyst at Morgan Stanley), Countrywide is trying to redeem its image as the delivery mechanism for American home ownership. The PR campaign might be worth something, but investors won't be paying much attention.
That's because investors care much more about dollars and cents than they do about image. Of course, they want a company to have the all the right qualities such as integrity, honesty, great service, etc. That's a given. But once a company delivers those, it has to deliver earnings as well. And that's going to be hard for Countrywide to do for a little while.
Lending standards have tightened. Lenders are still lending but requiring much higher down payments. Countrywide doesn't make the lending rules. And it's hard for them to bend them since they don't have control over their borrowing sources. They have to go to banks and thrifts to borrow money to lend to their customers. When those lenders make it harder for Countrywide to borrow, making more loans, and more profits, is harder.The next few months are going to be tough. Revenues will be down as will profits. That's a function of the market. What Countrywide needs more than PR is an economy that is robust, one where employment is higher, and money is a little easier to get. While the money got a little too available in the past, leading to loans that didn't make economic sense, it created an opportunity for Countrywide to become the dominant mortgage lender. The days of easy money are gone. But the expertise that Countrywide showed to become the mortgage leader isn't. It still has the people and the technology that gave them the competitive edge.
When the time is right, the company will once again show its creativity and expertise to become profitable.While the PR campaign may help company morale and sway a few people in their opinion about the firm, it won't make more profits. That's what investors really want to read about.
Disclosure: The author owns 500 shares of CFC as of this writing.