Mortgage woes weigh on Countrywide
NEW YORK -- Countrywide Financial Corp. shares sank 13 percent on fears the largest U.S. mortgage lender could face bankruptcy as liquidity worsens, its biggest one-day decline since the 1987 stock market crash.
Merrill Lynch & Co. analyst Kenneth Bruce downgraded Countrywide to "sell" from "buy" on Wednesday. Yields on Countrywide's debt rose, suggesting investors are less confident the company can pay its bills and fund operations.
Shares of Countrywide closed down $3.17 at $21.29 on the New York Stock Exchange. They have fallen 50 percent this year, and the company's market capitalization has dropped to about $12.3 billion. Countrywide did not immediately return requests for comment on Wednesday's share price decline.
Bruce's downgrade suggests deepening problems at Countrywide, which has in the last month tried to assure investors it would thrive once the credit crunch afflicting U.S. mortgage lenders passed.
The downgrade came a day after Calabasas, Calif.-based Countrywide said foreclosures and mortgage delinquencies rose in July to their highest levels since at least early 2002.
"If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency," Bruce wrote. "If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt."
He added: "The company can survive a period of secondary market instability; however, the steps that it would take to preserve shareholder value would be expensive, likely leading to further share price declines."
Shares of several other companies exposed to mortgages also suffered double-digit percentage declines Wednesday, including Deerfield Triarc Capital, KKR Financial Holdings LLC and Scottish Re Group Ltd. The KBW Mortgage Finance Index fell 2.7 percent.
The mortgage industry is struggling as defaults rise, investors refuse to buy many home loans, and bankers curtail lending to mortgage providers. Dozens of lenders have quit the industry this year, and several have gone bankrupt.