June 18, 2008 7:56AM
The Fallout at Countrywide Escalates
By Elizabeth MacDonald
Bank of America (BAC) has advertised itself as “the bank of opportunity.”
Countrywide Financial (CFC) and politicians who got inside sweetheart loan deals would have to agree.
The question for shareholders in Bank of America is this: Does the bank fully comprehend the extent of the problems it will soon inherit when it buys Countrywide?
Bank of America is forging ahead to buy Countrywide in a deal now estimated to cost $3.3 bn. Bank of America had earlier invested $2 bn in Countrywide prior to the announcement of the deal offer last January, which analysts understood Bank of America made to protect its initial stake.
A vote on its Countrywide purchase is scheduled for June 25. Bank of America is set to report second quarter 2008 financial results on Monday, July 21. A disastrous period of record write-offs soured Bank of America’s first quarter profits.
The fallout continues to escalate over Countrywide’s “Friends of Angelo” program, where the nation’s biggest lender (by loan volume) gave sweetheart loans to politicians who were allegedly were either acquainted with or were friends of Countrywide chief executive Angelo Mozilo, including Sen. Kent Conrad (D-N.D.) and Sen. Christopher Dodd (D-Conn.). New foreclosure data on Countrywide also shows just how unhealthy the country’s biggest lender is.
In addition, Countrywide faces regulatory probes over its questionable lending practices. Shareholder lawsuits have also poured in against Countrywide, and its CEO Mozilo still faces controversy over his stock sales in Countrywide, made at a time when Mozilo was making positive statements about the lender when the housing crisis was hurting results (Mozilo has ascribed his stock sales to a pre-existing executive plan).
Bank of America has $40 bn in cash and cash equivalents on its balance sheet, so it may be getting Countrywide’s real estate footprint on the cheap. The question is whether that sum is enough to withstand Countrywide’s regulatory probes, shareholder suits and negative publicity over Mozilo.
With a vote on the deal about a week away, here are Bank of America’s trouble spots:
The “Friends of Angelo” Program: James Johnson, a former chief executive of Fannie Mae, resigned last week as an adviser to the presidential campaign of Sen. Barack Obama after the Wall Street Journal reported that Johnson received sweetheart loans from Countrywide. Johnson’s lawyer has said those loans were made on normal terms. Now two senators also are caught up in the fallout from this program.
Senate rules bar members from knowingly receiving gifts worth $100 or more annually from companies that use registered lobbyists. Countrywide’s ethics code restricts executives, employees and board directors from improperly trying to influence government employees with money, gifts, loans, rewards, favors or anything of value.
According to the Washington, D.C. newspaper Roll Call, Sen. Conrad reportedly said the Senate Ethics Committee will look into mortgages he received from Countrywide.
Sen. Conrad said a review of a $1.2 mn loan he got in 2002 to purchase a vacation home in Bethany Beach, Del., showed he received a one percentage point discount on fees. Sen. Dodd in similar fashion got fractions off of points on his mortgages, as well as reduced interest rates on two mortgages by the time the loans closed, says Portfolio Magazine.
Roll Call reports that the senator has said he didn’t ask for or know about the discount. Sen. Conrad also said he has since discovered that Countrywide made a departure from normal lending practices in 2004 when it gave him a $96,000 mortgage loan backed by an eight-unit apartment building he owns in Bismarck, N.D. Portfolio Magazine reports that Mozilo sent an email to employees to “make an exception due to the fact that the borrower is a senator,” referring to Sen. Conrad.
Sen. Conrad says Countrywide typically made loans only on properties with four or fewer units, Roll Call reports. Sen. Conrad has said he will seek refinancing on the property from another lender. He also has said he believes he may have overpaid for the Bismarck loan, that he welcomes a Senate ethics inquiry, and to lessen the negative publicity about the point shave on his 2002 loan, plans to donate $10,500 to Habitat for Humanity, a nonprofit group that builds homes for poor people.
Sen. Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee, (Countrywide has had business before this committee), also has confirmed he received mortgages from Countrywide and that he will cooperate with any probes from the ethics committee, denying he sought special treatment from the lender.
“The rates that we received were not some cut-rate deals at all but rather standard rates that you negotiate out there, well within the range that people were being offered,” Sen. Dodd has said. Later came these statements from Sen. Dodd at a press conference. “There was no red flag to me [that] we were getting special treatment,” Sen. Dodd has said. “We don’t believe we did anything wrong. We negotiated a mortgage.”
The senator reportedly said Countrywide told him and his wife that they were being placed in a special program but that he assumed that was because they were longtime customers. Sen. Dodd said he has known since 2003 that his Countrywide mortgage was designated a “VIP” account, but that he never inquired about what the VIP status meant.
*Footnote: According to the D.C. newspaper The Hill, Sen. Conrad has sought to clarify a subsequent report that he spoke to Mozilo by phone about his mortgage. The reports quote Conrad as saying he didn’t call the lending executive or realize that talking to him could result in any special treatment. “I didn’t call him. I called my friend who happened to be with him at the time,” he said, referring to Johnson, the former chairman of Fannie Mae, whom Conrad says he called to ask for advice on getting a new mortgage.
The Hill says that by pure coincidence, according to Conrad, Mozilo was sitting next to Johnson, who suggested the senator speak to him directly. Conrad doesn’t recall whether Mozilo referred him to a Countrywide loan officer, or whether the company contacted him.
Meanwhile, Sen. Jim DeMint, (R-S.C.), has signaled he might try to block the housing measure, saying through a spokesman: “The housing bill has a multibillion-dollar taxpayer bailout for a company that reportedly gave preferential loans to members of Congress. This is exactly the type of thing Americans are sick of.”
Analysts and Investors Oppose the Acquisition: Analysts say Bank of America’s purchase of Countrywide Financial could endanger its shareholders, who have already warned that the bank can’t absorb all of Countrywide’s problems. “It’s a lot to ask Bank of America shareholders to stomach,” says Mike Larson, a real estate analyst at Weiss Research in Jupiter, Fla. Bank of America shareholder David Dreman, chairman of Dreman Value Management, opposes the deal. In the last three quarters, Countrywide has lost $2.5 bn, according to financial filings. Total nonperforming assets hit $6 bn in the first quarter of 2008, almost five times that of the same period last year. It had $95 bn in loans held for investments on its books, and it’s got high exposure to falling home prices in California and Florida. Countrywide also has $15.6 bn in mortgage-backed and other securities that it wants to unload, with $10.4 bn of these so-called Level 2 assets, thus difficult to value because the market for them is in a blackout mode. Another $5.1 bn are valued on the bank’s own models, not market prices, because the market for them are frozen solid.
Costly Foreclosures at Countrywide Continue to Rise: The number of homes that Countrywide has had to foreclose on continues to rise, with asking prices now worth a total of $2.6 bn. It now has to contend with more than 3,500 homes in California and 1,600 foreclosed homes in Florida. Prices continue to drop dramatically. To track its foreclosures, use this blog: http://countrywide-foreclosures.blogspot.com.
Paper Gains Powered More than Half of B of A’s First Quarter Profits: Bank of America’s first quarter results were helped by a one-time gain of $776 mn from Visa’s (V) IPO. Second quarter profits may not look so great in comparison. Bank of America’s first-quarter net income dropped 77% to $1.21 bn, or $0.23 per share, down dramatically from the year ago results of $5.26 bn, or $1.16 per share. Bank of America set aside $3.29 bn for future credit losses and wrote of $2.72 bn. Nonperforming assets - which represent delinquent loans payments — ballooned to $7.83 bn.
Bank of America’s Rich Dividend: The bank’s dividend currently yields 8.6%, or $2.56 a share. Watch to see whether it slashes its dividend to save some cash, as did Citigroup (C) and Wachovia (WB). To keep its dividend, the bank will have to pay out virtually everything it earns in 2008, as the 2008 consensus analyst estimate for the bank’s earnings is $2.66 per share.
Comment by Lynn Brewer
Jun 18th, 2008 at 11:56 am
This from Countrywide’s own website about ethics and governance - doesn’t this fall in the line with a violation of its own stated policies?
Improper Influence
At Countrywide, all customers and business partners receive the same high level of assistance and service. Countrywide directors, officers and employees are strictly prohibited from giving, soliciting or accepting business courtesies or gifts intended to influence business decisions. All business decisions are to be made on the basis of the merit of the transaction and in compliance with any legal and regulatory requirements.
Comment by DrDetroit
Jun 18th, 2008 at 2:47 pm
There are no risks for Bank of America’s acquisition of Country Wide.
Bank of America walks away clean with a fed bailout.
The Federal Reserve Bank of New York has closed door private bailout plans for Bank of America.
They are secretive about this.
They also have plans for the following:
Barclays Capital
BNP Paribas
Citigroup
Credit Suisse
Deutsche Bank AG
Dresdner Kleinwort
Goldman, Sachs & Co.
HSBC Group
JPMorgan Chase
Lehman Brothers
Merrill Lynch & Co.
Morgan Stanley
The Royal Bank of Scotland Group (Citizen’s Bank)
Societe Generale
UBS AG
Wachovia Bank, N.A.
Buy-Side Firms: AllianceBernstein
BlueMountain Capital Management LLC
Citadel Investment Group, L.L.C.
Bank of America - AND General Tommy Franks, Larry Di Rita - both sr. pentagon officials make out with more profit that all the Fox News employees salaries combined for the span of their career until the indictments begin.
Comment by DrDetroit
Jun 18th, 2008 at 2:52 pm
Correction - ‘THAN’ all the Fox News Employees combined.
Bernanke has 600 Billion set aside for free handouts - that’s not bad considering these institutions are getting corporate welfare checks. Seems 600 Billion to the corporations that did bad business - clearly corrupt business (as Fox points out CountryWide CLEARLY is corrupt, and yet ? Fox News was the #1 advertiser of CountryWide ) - is more than the US citizens get for their welfare checks.
Comment by DrDetroit
Jun 18th, 2008 at 2:54 pm
How is it Fox News/ Business News plugs CountryWide as being corrupt.
All the while - Fox touts its ratings, and just WHO was the #1 advertiser for CountryWide ?
this corrupt organization they keep stating was in bed with politicians and others ?
Fox News.
I DID say - be careful Fox - with CountryWide- you could expose yourself here.
Hey, even if you were just in the car with the bank robbers, you’re going to prison too.
Comment by DrDetroit
Jun 18th, 2008 at 3:08 pm
I’m SURE FRBNY is HAPPY that list is out now.
Again, how is it Fox News is the #1 advertiser of this alleged ‘corrupt’ mortgage company ?
You know ? If you went to a psychiatrist and repeated to the doctor what Fox News promotes on the air ? That the terrorists are going to get us ?
Or to quote Dick Cheney “Terrorists WILL strike a US city with a nuclear weapon eventually ” ?
Do you know how fast you’d be jacked up on thorazine ?
And yet ?
With quality folks like Kevin Martin as Chair of the FCC ? Fox is still on the air.
There WILL be catharsis from this madness, it will begin with Moody in jail.
It’s a crime to provoke innocent people to live in fear in my book.
I blame people like Pat Robertson, or Sean Hannity who promote focus on ‘End Times’ - you know ? ask yourself ? how many un-educated people will respond to this christian end times hat trick and actually say - ‘Hey honey, let’s get that sub prime loan from CountryWide we just learned about watching Fox News in between Hannity telling us we might be in End Times, I mean, what they heck honey, let’s live like there is no tomorrow - let’s go Interest only and no money down !’
People in the media have a certain responsibility - not to manipulate or spook citizens.
I STILL can’t believe Fox News has the gaul to go after CountryWide when they have been in bed with CountryWide more than anyone else.
Wait till ‘certain’ Fox employees track records come out with CountryWide
we’ll see how fast these slimeballs to to hide under a rock and find some distraction high sensationalistic zooming in on the horizon of some missing child - children go missing EVERY day - and Fox - when it’s ‘ideal’ to run sensationalism or distraction, cherry picks when to bring up that daily event.
It’s as if a small group of dimented people got ahold of CNN’s software and just appeared on my retina one day- using CountryWide ad revenue to pay their salaries in turn to go bash CountryWide -
Which is it Fox employees ? Did you take money indirectly from CountryWide ad revenues ? or what ? you didn’t think to check the integrity of your advertisers ?
And Fox STILL runs ads for CountryWide
STILL to this day - almost the SAME ads as before.
Amazing the lack of integrity.
Comment by DrDetroit
Jun 18th, 2008 at 3:22 pm
Bottom line Fox employees
You take money from CountryWide in your paychecks.
to that ? I suppose if it’s not keeping you up at night, you must say “I don’t care”
and yet ? if you don’t care about matters of integrity when it comes to YOU taking money from CountryWide - and yet you care about OTHERS financial endeavors with CountryWide ?
I do say - that sounds to me like a character flaw - some hypocrisy.
How can you take money from a company - CountryWide via ad revenues from Fox News - AND at the same time state this company’s behavior is questionable ?
Where are your PRINCIPALS ?
my point, there are few.
This very ARTICLE was in part paid for by CountryWide ad revenue.
On that alone, there has to be bias.
Granted, I find it HARD to find flaw with Ms. MacDonald !
Also - if anything the article DOES paint a questionable view of CountryWide -so, it’s not like CountryWide is paying in part salary for the person writing the ad and the ad is Pro-CountryWide, I mean, it IS critical - so, it’s not an issue of conflicting interests in that regard, BUT - bottom line, CountryWide in part paid for this article on CountryWide.
I may have a flaw or two in my point as well- so I’m not perfect here either.
That’s just it though, I KNOW I’m not perfect, Fox news never - EVER runs anything critical of this current administration, and how is it ? that an administration could be so perfect ? to never be in error.
I’ll tell you why, Fox gets ad revenue from CountryWide - but it also is a political mouthpiece for this administration, which according to Fox is never in error.
Something pathological about that.
It’s almost like Fox can take money from CountryWide as their #1 advertiser - but has no problem doing that at the same time attacking CountryWide’s corporate business policies/ethics.
Comment by DrDetroit
Jun 18th, 2008 at 3:38 pm
Fox reports the terror, you decide to live like there is no tomorrow - and go out and GET that CountryWide interest only mortgage you saw advertised on Fox News in between the fear terror(ists) forever stories.
Give me a BREAK - USA has actual REAL serial killers- real psychopaths who DO blow things up, and we’re afraid of a few desert rednecks with rifles ? or cave dwelling angry afghanistan residents ?
Afraid enough to uproot our civil liberties ? for what ?
for that ?
give me a break
No, this is Bush Savings and Loan looting part II
scare the people into purchasing over 500 billion in bunk loan products all advertised over 50 times a DAY on Fox News.
Over - reaction to sub prime crisis ?
try over-reaction to 9.11
Iraq wasn’t a justified response to 9.11
I just saw an interview when stations were re-showing Tim Russert interviews - he was interviewing Cheney - REAL neat part
“Was Iraq in any way connected to 9.11 ”
instantly - cheney goes “No, not at all”
of course, that was at a different time before the admin announced it’s great plan to go forcibly bring democracy - even presented as IF the United States existed before ancient greek democracies, or Rome - funny how Bush seems to have skipped world history or antiquity studies.
Bottom line, Fox ran a LOT of stories on how hopeless things are - and in turn ran a LOT of ads on mortgage products that would likely only SANELY be purchased if you really didn’t expect to LIVE much longer, or think you would be.
who in their right mind would EVER buy a 350k interest only mortgage with 40k income - rubber stamp approved - by CountryWide - ? Well knowing they could never afford it.
I’ll tell you - they just had to turn on Fox News, adopt the hopelessness promoted- I’ll NEVER forget the day Fox ran Cheney’s comment that ‘Terrorists WILL nuke a US city- eventually, no matter what’. Gee, That’s enough to make ANYONE waltz out to CountryWide and say - ya know ? Fox keeps telling me the terrorists are gonna get me, sign me up for that mortgage product I can’t afford. In fact, while you’re at it ? bundle it with the others and go sell it to Bear Stearns- because in the end - the Fed will just bail them out and that’s all fine with me.
Comment by DrDetroit
Jun 18th, 2008 at 3:44 pm
Talk about post traumatic stress…
Just WATCHING Fox News can give you post traumatic stress.
Just having WATCHED over the last 5 years - my god - the emotional manipulation, over stories that I will NEVER EVER have ANYTHING to do with my life - yet - 24/7 after day - Where’s Natalie !
4 second clip - 9 US troops die today in Iraq, NOW, back to Where’s Natatlie - tonight at 9 with O’reilly, 10 with Geraldo and 11 with Gretta - Where’s Natalie.
Fox goes off about it’s rating, and what ? What does it get for advertisers…
brainwashing tactics of Head On - a completely fake product - but conditions you psychologically -
CountryWide
yeah, REAL high quality advertisers - with those ‘ratings’ that are supposedly #1 -
riiiiiiiiiiiiiiiiight
Fox isn’t even a TV network, it’s hard to say what it is, more like an experiment in mind control -or perhaps a test in the potential for ignorance and insolence as a human condition. I’m just waiting for Sean Vanity to announce he’s the christ - and he’s starting a cult out in New Mexico with all the people who made deals during the Fox indictments to skate jail time.
Anyone that ‘doesn’t GET’ that the ‘christos’ is a collective of humanity, probably not only personalizes the christos as if it’s one person, but probably has plans for a selfish- personal afterlife plan where they can spend those hard earned afterlife bonus points by living through compulsion and not with any moral responsibility derived from within.
Comment by DrDetroit
Jun 18th, 2008 at 3:54 pm
Countrywide confined African Americans to higher-cost loans 1.43 times more frequently than whites. If combined with Bank of America, N.A., the disparity for African Americans grows to 1.54.
And now - for the most important story - Fox News discovers a few isolated storms in the north west, er, a few isolated questionable mortgages - all the while ignoring the fromer statement above.
Hmm where IS the story Fox ? Compliance violation ? or you’re unhappy because Dodd’s is sending the SEC after you (prior to you running the Dodd’s bash, you KNOW he has orchestrated the SEC to come after you harder)…. Gee ? you discover you’re about to be held more accountable by the SEC and in response ? you try to frame Dodd’s with an unfair ? or is it illegal ? just what is it Fox ? that you hold Dodd’s to ?
Either way, you can go after Dodd’s while ignoring:
Countrywide confined African Americans to higher-cost loans 1.43 times more frequently than whites. If combined with Bank of America, N.A., the disparity for African Americans grows to 1.54.
But - the SEC is coming - and now, The mornings stock picks on Fox n Friends ! ?
Gee, who dumped what while promoting a buy rating on Fox on what day ?
I sure wouldn’t want to be them in the up and coming months.
any HEALTHY FCC/FTC/SEC/DOJ circle would have this one nipped already.
Comment by DrDetroit
Jun 19th, 2008 at 10:40 am
I didn’t think Fox would be ‘fair and balanced’
more like cherry picking what to print -
If this kind of media moderation occurs on the forums
I can only imagine the kind of filtering that happens on the network broadcast content.
Fair and Balanced - I don’t think so.
Comment by DrDetroit
Jun 19th, 2008 at 10:44 am
I see the America that comprisies Sean HAnnity’s America !
It’s the America that doesn’t consist of free speech
or public forum
it’s private - controlled - and censored out the wazoo.
Gee Sean, what do YOU have to hide that you have to CONTROL what people SAY in public or on your companies forums ?
I think my points are valid - hey, Fox - email me back perhaps to state where you think something is overboard - or out of line -otherwise - why pick and choose what you want to be shown.
Is this the ‘America’ you so deeply defend ? censored - cherry picked stories and user feedback ?
Why not let the voices of the people be heard Fox ?
If this is how you run your forums, I can’t imagine the principals or lack there of in how you run your alleged ‘news’ services.
How could it be - that all of the X-Fox employees stories are true -
is it ?
I love the lq.foxbusiness.com refresh every second.
Comment by DrDetroit
Jun 19th, 2008 at 10:49 am
I think people are interested that Fox promoted CountryWide so much and now they are going through the criminal investigation cycle.
I think people want to know about that.
I think it would be entirely suspect if Fox didn’t cover itself.
Anything that is rejected here for posts - I’m simply going to include on every other major news media forum for BEING excluded. It’s that simple, because I think it’s fair and balanced to share these ideas. I mean really, if Fox promoted CountryWide SO much - and CountryWide is at the CORE of the sub prime mortgage crisis ? Gee
I think that’s something to look further into, and I KNOW others have already began that process. I know one thing, Fox News won’t be covering the Fox indictments.