I’ve decided to short CFC (Countrywide Financial Corp). It’s the largest mortgage company in the US and it serviced 13% of all loans as of June 30. So, why am I shorting it?
– “We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,” said CEO Angelo Mozilo. “This is a huge battleship, and we’re headed in the wrong direction.”
– “unprecedented disruptions could have an adverse impact on our future earnings and financial condition.”
– So far in 2007, Countrywide’s returns are down more than 30%. Almost all of those losses have come in the past three months.
– It had to borrow $11.5 billion. This is their entire line of credit. This was also an unsecured loan. Suppose I suddenly maxed out on all of my credit cards in one day. That would seem very suspicious.
– There is a bank run on CFC. Losing deposits means losing the amount that you can loan out. It also means losing operating capital.
– Moody’s and S&P’s CFC bond rating is now one step away from junk.
– CEO Angelo Mozilo sold 40 million shares in 2007. Since the beginning of 2006, Mozilo has sold about $247.9 million worth of Countrywide shares. He now only holds 500 thousand shares. This type of activity signals the company is going down.
Sure, CFC jumped up today after the Fed cut. But, long term, it doesn’t solve anything for CFC. There are other unknowns. Particularly if it will get bailed out if it fails. Also if further fed cuts will happen in the near term. So, barring more governmental manipulations, it will surely go down.
Articles:
Lender Countrywide borrows to survive
Countrywide CEO Sold 40M Shares in 2007
Countrywide Financial Posts 33% Net Income Drop; Slashes Guidance
Countrywide not written off yet
Yahoo CFC Quote
The Crooks Will Be Exposed!