Home Loan Firm Profit Slides 39%

Fourth-quarter profit at Countrywide Financial Corp. plunged 39%, largely because it underestimated the stubbornness of mortgage rates not rising along with short-term interest rates, the company said Wednesday.

The Calabasas-based home loan company -- the nation’s biggest -- reported net income of $343 million, or 56 cents a share, compared with $564 million, or 94 cents, a year earlier. Revenue was flat at $1.9 billion.

Analysts had forecast per-share earnings of 81 cents on revenue of $2.1 billion.

The results jolted investors, who sent Countrywide’s shares down as much as 7% before closing at $35.91, down $2.12, or 5.5%, on the New York Stock Exchange.

Countywide executives, in a conference call with analysts and investors, said the causes of the profit slide were anomalies that would not affect results in the current year. They expect per-share earnings of $3.25 to $4.25 in 2005.

The executives blamed the downturn on losses in the company’s giant loan-servicing portfolio and larger-than-expected losses in its insurance unit because of the Florida hurricanes.

Michael McMahon, an analyst at Sandler O’Neill & Partners, said about the earnings report, “There was a lot of noise in the quarter, but the underlying trends are still reasonably good.”

He called the per-share net income number “a disappointment,” but said Countrywide’s operating earnings were closer to 76 cents “if one assumes there won’t be four hurricanes each quarter and if the aberration in the hedging results is not repeated.”

McMahon doesn’t own any Countrywide shares and has a “buy” recommendation on the stock.

Countrywide’s loan-servicing operations, which involve collecting mortgage payments from borrowers, lost $278 million before taxes in the fourth quarter, compared with pretax earnings of $83 million a year earlier. The sharp reversal was caused by a decline in the spread between short- and long-term interest rates and led to a $92-million charge in the quarter.

“The fourth quarter, in one sense, was an anomaly,” Chief Executive Anthony Mozilo said in an interview with Bloomberg News. “If rates rise, and it appears they’ll continue to rise, the servicing portfolio would be a main support for the earnings of the mortgage bank.”

The company also said it underestimated the effect of September’s hurricanes in Florida on its insurance-sector results, which led to a charge of $45 million.

During the fourth quarter, Countrywide’s loan volume rose 25% to $95 billion. It accounted for $477 million in pretax earnings, compared with $581 million a year earlier, because of a general industrywide decline in refinancing activity that put a squeeze on margins as competition heated up.

Expansion of the company’s banking sector in California during the period hiked the company’s tax rate to 38.9% in the quarter from 38.3%. To avoid paying higher taxes in the future, Mozilo said, Countrywide will ramp up plans to shift operations to other “states where tax rates and the overall cost of doing business are lower.”

For example, Countrywide plans to hire about 7,500 workers in Texas and Arizona over the next four years.

In 2004, Countrywide claimed the top spot as the nation’s largest mortgage company, with a 13% share of the $2.8 trillion in mortgages originated last year, according to trade publication Inside Mortgage Finance.

For the year, Countrywide’s profit fell 2% to $2.3 billion, or $3.83 a share, from $2.4 billion, or $4.18, in 2003. Revenue declined 14% to $5.1 billion.