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Countrywide Financial Earnings: The Good, The Bad, The Ugly


CFC missed numbers, both on top and bottom-line.


The Good:

  • Countrywide's (CFC) banking segment performed well, with pre-tax earnings increasing 33%.
  • Capital markets performed well, with pre-tax earnings increasing 42%.
  • The company announced a share buyback program, usually the last resort of the desperate.

The Bad:

CFC missed numbers, both on top and bottom-line.

  • Mortgage banking was the big culprit.
    • It declined 40% for the quarter and 20% for the nine month period.
    • MSR and retained interest valuations charges, net of hedge, were responsible for a $173 million negative swing in the quarter.
    • It would look even worse if a $51 million hurricane charge from 3Q '06 was exed out (meaning real earnings production was way down).

The Ugly:

  • On-going trends do not look good. Despite claiming that 4th quarter should show a turnaround, the company is:
    • Reducing headcount.
    • Spending a lot of time talking about expense management.
  • Despite declining credit quality and decreased loan loss provisions, the company added at least three cents to earnings.
    • Loan delinquencies were up 33 basis points.
  • Lowered guidance, substantially.

All-in-all, we have another disappointing report from a mortgage lender. Despite all the bad news, however, it could be expected that the reaction is somewhat muted as the stock has been trading down and is trading dirt cheap (8x out-year earnings).

Steve Zausner contributed to this article.

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Position in CFC

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