Countrywide Surges on Expected Return to Profitability in Q4

Shares of number-one U.S. mortgage lender Countrywide Financial surged more than 20% in pre-market trading Friday after posting a worse-than-expected quarterly loss, but surprising the Street by saying it expects to return to profitability by next quarter. A net loss of $1.2 billion (-$2.85/share) was the company's first quarterly loss in 25 years. Last year, the company earned $647.6 million ($1.03/share) in Q3. Analysts, on average, had expected a $1.65/share loss. The company said the situation will be short-lived: "We view the third quarter of 2007 as an earnings trough, and anticipate that the company will be profitable in the fourth quarter and in 2008," President David Sambol told investors. "Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive," (full earnings call transcript later today). Countrywide blamed the loss on three factors: inventory valuation adjustments caused by unprecedented disruption in the capital markets; increased credit costs related to continued deterioration in the housing market; and restructuring charges resulting from Countrywide's expense reduction initiatives. The company took a $1 billion write-down on its mortgage-backed loans and securities. It increased loan loss provisions to $934 million, compared to $293 million last quarter. It also said housing-market weakness and credit-market tightening are expected to substantially reduce mortgage origination volume in 2007 and 2008 relative to earlier volumes. For Q4, Countrywide expects EPS between $0.25 and $0.75. "The wide range in the guidance is caused by the significant potential volatility," it said. Countrywide also told investors it was able to secure $18 billion in "additional highly-reliable liquidity."

Sources: Press release
Commentary: Option Arm Problems at Countrywide Deepen • Countrywide's Troubled Financials • How Egregious Was Countrywide's Option ARM Lending?
Stocks to watch: CFC. Competitors: BAC, FRE, FNM
Earnings call transcript: Countrywide Financial Q2 2007

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Comments

[Burns:]

Sorry, but I don't think Countrywide can turn itself around in just 1 quarter. Whereas other financial firms were partially involved in subprime loans, Countrywide's entire business plan seemed to be subprime loans. Some changes need to be made, first and foremost Mozilo must go. Second, clear up that SEC investigation ASAP. After that, in a couple of years Countrywide should be fine, assuming the Directors ( www.newsvisual.com/new... ) learned something.

2007 Oct 26 11:22 AM

[olretred:]

It appears (by the run up in the stock price) as though Countrywide's P R people have found buyers for the deck chairs on the Titanic.

2007 Oct 26 12:27 PM

[jcee:]

WELL SAID OLRETRED, THOUGH I DOUBT IF THAT IS STRONG ENOUGH.
LOOKS LIKE A GOOD CANDIDATE FOR A SHORT SELL.

2007 Oct 27 02:28 PM

[jcee:]

BSSSSSSSSSSSSSS

2007 Oct 27 02:21 PM

[Portfolio M...:]

Why shouldn't we trust the management of CFC? After all, haven't they given excellent earnings guidance over the past year? And surely there couldn't be any more bad debt lurking in their balance sheet? Angelo and the tooth fairy will protect the suckers currently buying the stock, won't they?

2007 Oct 27 09:30 PM

[Mosh:]

The biggest scammers of them all, wall street banks, are involved in this subprime mess up to their necks.
MER restate 4 BILLION dollar loss to 8 billions in 2 weeks!
CFC's CEO told everyone few weeks ago that no recovery is in sight until end of 2008. How the heck is CFC going to be profitable in 3 months??? I just don't get the absurd here...

2007 Oct 28 06:01 PM