Rumors lift stock of Countrywide
Countrywide Financial Corp.’s share price jumped Tuesday on renewed speculation of a buyout of the Calabasas-based company, the nation’s largest mortgage lender.
The stock climbed $2.77, or 7.2%, to $41.28 after rising as high as $42.19.
“We don’t know where the rumors originated,” said Chris Jacobson, senior option strategist at Susquehanna Financial Group in Bala Cynwyd, Pa. “But several sources are attributing the strength of the stock to the rumors.”
Renewed talk in Congress about government aid to homeowners facing foreclosure also contributed to the gain, Jacobson said.
Countrywide declined to comment on its stock’s climb.
The mortgage business has been roiled this year by sluggish housing markets and rising defaults, especially in the sub-prime business, which makes higher-cost loans to borrowers with flawed credit, heavy debt loads or limited incomes. At Countrywide, the third-largest sub-prime lender last year, the sector’s woes were blamed for a 37% decline in first-quarter profit.
Countrywide’s Chairman, Angelo R. Mozilo, has warned that government action could further damage the mortgage market. Some legislators have suggested banning loans with rates that jump sharply after two or three years -- a standard feature in sub-prime mortgages.
Mozilo has said the ban would make it impossible for holders of such loans to refinance and thus would lead to more foreclosures.
At a hearing Tuesday in Washington, members of the House Subcommittee on Financial Institutions and Consumer Credit also expressed reservations about intervening in the mortgage industry. But Rep. Carolyn B. Maloney (D-N.Y.), the subcommittee’s chairwoman, said Congress would take action if necessary.
“I am generally a supporter of market-based solutions,” Maloney said in a prepared statement. “But, as these hearings should make clear, this committee is by no means waiting for the private sector to do what it thinks is right to solve this rapidly growing crisis.
“Market-based solutions sometimes don’t provide sufficient protections to those with little market power -- in this case, our constituents who face the loss of their home.”
As the largest stand-alone mortgage company, Countrywide provides consistent grist for the takeover rumor mill, particularly because Mozilo, who co-founded the company in 1969, is 67 and says he will retire in two years. Speculation of a deal with Bank of America Corp. drove Countrywide’s shares up 12% during trading Jan. 26 before the stock closed that day up 5%. The rumor was later denied.
Mozilo has played down the prospects for Countrywide’s being acquired in the near future or making a large acquisition itself.
Credit Suisse analyst Moshe Orenbuch, who visited Countrywide on Thursday, said in a report this week that Mozilo predicted that Countrywide and San Francisco-based Wells Fargo & Co. would remain market-share leaders in mortgages after a round of consolidation in the beaten-down industry.
“He also indicated that he could not see Countrywide being absorbed by a large bank, as that could destroy the franchise value that had been created,” Orenbuch wrote.
