Countrywide Credit to Diversify, Offer Online Banking

Moving to strengthen its online offerings and diversify its services, Countrywide Credit Industries said Thursday that it will use a charter gained through its acquisition of an East Coast bank to offer banking services over the Internet.

Acquisition of the bank charter puts Countrywide on a more level playing field with major banks, its chief competitors in the mortgage origination business. But analysts said the mortgage lender’s banking Web site will face tough competition from Bank of America and Wells Fargo, which host the most popular banking sites online.

Expansion of Countrywide’s financial services was made possible by the Federal Reserve Board’s approval this week of a request by Effinity Financial Corp., a Countrywide affiliate, to acquire Treasury Bank. Countrywide plans to change the bank’s name to Effinity Bank and move its charter to Effinity’s headquarters in Alexandria, Va.

The acquisition of Treasury Bank’s charter will allow Countrywide and Effinity to offer checking, savings and other banking services through a proprietary software system to Countrywide’s 3 million customers. The online banking Web site will debut later this year. Countrywide currently is one of the top mortgage lenders on the Internet.

The move into online banking is part of a push by the 32-year-old mortgage lender to diversify its services to compete in the highly fragmented mortgage industry. The company now derives a third of its earnings from services outside mortgage banking.

“This will provide our customers an ability to get all their financial services in one place,” said Clarence Simmons, president of Countrywide Financial Holding Corp. “Banking is one of those core relationships that allows us to tie together all the other services we provide.”

Analysts said it’s difficult to make money in the volatile mortgage business, where loans are a commodity in a market that’s largely dependent on swings in mortgage interest rates.

“There’s no pricing power. Countrywide can’t all of a sudden mark up their mortgages because their mortgages are better than Bank of America’s--they wouldn’t get any business,” said Michael McMahon, an analyst with Sandler O’Neill & Partners in San Francisco.

But Internet analysts say it will be tough going for Countrywide to attract customers to its online banking services--even customers who already have their mortgages serviced by Countrywide but do their banking elsewhere.

About 11% of U.S. households do some banking online, mainly to check balances, transfer funds or pay bills. Those services are starting to appeal to an audience outside of the early adopters, said Catherine Graber, a senior analyst at Forrester Research.

Even so, people who bank online are loyal to their service providers, with 83% of consumers who responded to a Forrester survey saying they had no intention of switching banks.

“It’s going to be a real uphill battle for them,” Graber said. “Customers don’t switch unless they’re miserable with their service provider or they move.”

In addition, Countrywide will face a preference by consumers who bank online for providers that also have bricks-and-mortar branches.

“The bulk of consumers who are banking online are also doing so at existing bricks-and-mortar banks,” said Greg McBride, a financial analyst at Bankrate.com. “This indicates that while consumers enjoy the convenience of banking online, they prefer to be able to walk into a local branch and deal with someone face to face.”

Countrywide’s strength is its ability to remain competitive as the nation’s largest independent mortgage originator, McMahon said.

The Calabasas-based firm generated $61.7 billion in mortgages last year, which gave it 5.7% of the market and made it the nation’s third-largest mortgage originator, according to Inside Mortgage Finance Publications Inc. But the firm was the only company of the top five loan originators that was not part of a major U.S. bank.

Countrywide’s major competitors are all banks that purchased mortgage originators as part of a consolidation wave sweeping the mortgage loan industry in the last decade.

Countrywide’s stock fell $1.27 to $44.20 on the New York Stock Exchange on Thursday.