Contains updated market information.
Countrywide Financial revealed that the speed of delinquencies of its subprime loans has almost doubled from two years past, making it less likely the lender would have the ability to work out amalgamation or an alliance with Bank of America.
In its 10K annual report form, filed with the Securities and Exchange Commission, Countrywide (nyse: CFC – news – people ) said that 19.0% of its subprime mortgages — home loans made to borrowers with less than pure credit — were delinquent in 2006. This was up from 15.2% in 2005 and 11.3% in 2004.
The new amounts did not come as too much of a jolt to investors, and Countrywide’s shares dropped just 90 cents, or 2.3%, to $37.44. Credit-quality issues are anticipated at Countrywide and other lenders offering subprime loans because borrowers with low credit ratings have been defaulting at records rates. (See “Prognosis For Subprime Lenders Seen As Rough”.)
Investors and analysts had prepared for the worst at Countrywide by cutting on the stock and approximations. Analysts polled by Thomson Financial in mid-2006, forecast gains of $5.00 a share for 2007 and $5.85 a share for 2008. By February, those analysts just viewed $4.50 and $5.02, respectively. The business’s stock, which traded over $45, is down almost 15%.
But the stock was protected from additional losses lately on by conjecture of a deal with Bank of America (nyse: BAC – news – people ). In January, the Financial Times said that Bank of America was in discussions with Countrywide for a joint venture or an acquisition.
Bank of America Chief Executive Kenneth D. Lewis, nevertheless, appeared frosty on his interest at a later meeting with analysts. Kenneth indicated the bank didn’t need to raise its vulnerability to mortgage financing.
“In our evaluation, a joint venture with or acquisition of Countrywide by Bank of America is improbable,” wrote Piper Jaffray (nyse: PJC – news – people ) analyst Andrew Collins in an earlier customer note. “Although Bank of America suggested that it enjoys the mortgage product, the firm doesn’t enjoy the mortgage business.” (See: “Prices Are Off And Galloping”.)