Friday, October 26, 2007

Countrywide Issues Incredible Earnings Spin

From CBS.Marketwatch:

Beleaguered mortgage lender Countrywide Financial Corp. reported Friday its first quarterly loss in 25 years, a reflection of the turmoil in the credit markets that's roiled financial-services companies in the U.S. and elsewhere.

......

The Calabasas, Calif.-based company reported a third-quarter net loss of $1.2 billion, or $2.85 a share. In the year-ago period, Countrywide saw net income of $648 million, or $1.03 a share.

...

Countrywide said it took losses and write-downs of about $1 billion on non-agency loans and mortgage-backed securities. Moreover, The company increased its loan-loss provisions on its held-for-investment portfolio to $934 million, up from $293 million in the second quarter.

.....

The lender also raised its estimates of future defaults and charge-offs due to a worsening housing market, higher delinquencies and tighter credit. Countrywide plans to cut between 10,000 and 12,000 workers by the end of the year as a result of plunging origination volume.

...

"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," Sambol said.


So Countrywide

-- Increased its loan loss provision by a factor of three

-- Writes off a billion dollars in loans

-- Increases the estimates of future defaults

-- Intends to lay-off 10,000 to 20,000

But this quarter is the "earnings trough".

That just doesn't pass the smell test.