Countrywide's Earnings Fall 47% as Refis Drop

Times Staff Writer

With the refinance boom a fading memory, Countrywide Financial Corp. said Wednesday that third-quarter profit fell 47%, a nosedive that knocked its stock for a loop and dragged down shares of other home-loan specialists.

A downturn was expected -- refis peaked in the third quarter of 2003 as interest rates hit bottom -- but the Calabasas company widely missed analysts' earnings estimates and lowered its guidance for the rest of 2004.

Countrywide said it had been spending more to hire additional salespeople as the industry's battle for market share intensified. Chairman and Chief Executive Angelo Mozilo said that fierce fight cut into profit margins, as did an increase in adjustable-rate loans, which are less profitable than fixed-rate loans. "There's less of a pie to go around," Mozilo said during a conference call with analysts.

Countrywide, the nation's No. 1 mortgage originator, earned $582 million, or 94 cents a share, down from $1.1 billion, or $1.93, a year earlier. Revenue fell 23% to $2.2 billion, chiefly because mortgage banking income declined from $1.5 billion to $633 million.

Wall Street analysts polled by Thomson First Call had expected earnings of about $1.01 a share for the quarter and $4.15 for the year, but Countrywide pared its 2004 forecast to no more than $4, down from $4.25 a share.

Its stock dropped $4.33, or 12%, to $33.17 on the New York Stock Exchange as some analysts sounded alarms about the home-loan industry as a whole.

Standard & Poor's Equity Research reiterated recent negative remarks about mortgage finance companies and savings and loans.

"We still think the group is overvalued," S&P; equity analyst Erik Eisenstein said in a report that included an "avoid" rating on Golden West Financial Corp., the Oakland company whose World Savings Bank is generally regarded as the best-run major thrift in the nation.

Golden West shares fell $2.80 to $108.75 on the NYSE, and other California mortgage lenders were wounded as well. Downey Financial Corp. in Newport Beach closed down 66 cents at $54.02, Fremont General Corp. in Santa Monica was off 40 cents at $21.75, and New Century Financial Corp. in Irvine fell $1 to $54.25.

No. 3 home-loan originator Washington Mutual Inc., the huge Seattle S&L; undergoing a major restructuring because of problems in its mortgage business, also reported significantly lower profit Wednesday. WaMu net income fell 34% to $674 million, or 76 cents a share, from $1.02 million, or $1.12, a year earlier.

WaMu reported after the markets closed; its shares fell $1.11 to $37.85 on the NYSE. Its earnings easily topped analysts' estimates of 71 cents, and the stock was moving higher in after-hours trading.

Wells Fargo & Co. stock, which fell 80 cents to $59.35 on Tuesday after its earnings missed expectations, gave up an additional 53 cents to close at $58.82. Wells Fargo, the second-largest originator of home loans, saw its third-quarter revenue from mortgages decline 40%, though other parts of the diversified bank picked up enough to boost its overall profit by 12%.

Mozilo long has sought to diversify Countrywide as well. But the third quarter proved tough for some secondary businesses: Mortgage servicing lost $23 million compared with a $74-million profit a year earlier. Mortgage rates fell just enough during the quarter to reduce the value of Countrywide's servicing rights without triggering another surge of refinancings.

The company's Balboa insurance companies had to set up a $23-million reserve for Florida hurricane losses, and declines in mortgage securities trading caused operating profit to fall to $90 million from $135 million at the capital markets division.

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