Well, everyone, syphilis is on the rise. The Department of Health reports that cases of Cupid's disease in the city increased sixty percent last year. Who do we have to blame for this? Nominations include Jim Simons, Cody and Cavuto, and Angelo Mozilo, the last one being most plausible, considering his (tanning) bed-hopping frequency. Hopefully, today's testimony before Congress will shed some light. In the meantime-- any other culprits you can think of? The shareholders have a right to know.
The mortgage lender got sued again by the United States Trustee and while that is great news in and of itself, it’s not the cause of the celebration in the break room to which I am referring. No, the Funfetti cake and party hats were broken out by the boss man himself because this time the claim brought against the crooks was filed with the sunny Federal Bankruptcy Court in Miami, the United States Trustee for the Southwest region. And you know what that means—business y pleasure trip. Nothing can bring this guy down. I don't even want to think about what's going to happen when he finds out BJ's is running a two-for-one sale on those reflector board things people used in the 60s.
I just saw (not so) "big al [Greenspan]" leaving the hotel on fifth ave (next to cipriani btwn 59th/60th). Not only does the guy have a Louis Vuitton luggage, he had an orange LV duffle. Seriously, what was he thinking?...I would have taken a picture if hadn't been so nasty outside. The orange was similar to a "blood orange", even moz would have been appalled.
We're not crazy- we understood full well the tough times that mortgage lender Countrywide has lately fallen on would mean a battening down and tightening of the company belt. We just assumed the streamlining would be contained to firing a ton of employees and screwing a few more people on their home loans, and not impinge on the really important stuff, like flying Ang. Moz.’s leathery goodness around the world in style.
So we were extremely disappointed to hear that the company put its Gulfstream IV on the market, for $21.5 million, which really isn’t that much money when you factor in how sad the sale will make the old crocodile, who’s had some great times in that thing. Making spur of the moment visits to Fresno for the ego boosts derived from thinking about how many people he and his associates fucked in town. Entertaining tanning bed distributers at the cabin bar during the flight to Dubuque, Iowa for their missionary work (if ever there was a population comprised solely of pasty individuals in need of a little “face paint,” as Moz likes to call it, it was in Dubque). Throwing $500,000 in small bills out the window over a cattle ranch in Montana, and making 100 Countrywide staffers pick up and return every last dollar. Shit like that.
And now he's being involuntarily stripped of these memories, like the chemical peel he so desperately needs but refuses to get. Anyway. I’m not sure there’s anything any of us can do about it, but I just felt you should know. If I'm wrong, and you do have the scratch, there's contact information for some Countrywide guy named Patrick Johnson who I guess is handling the sale. Give him a buzz in the office at (818) 778-1770, or try him on his cell at (203) 890-2000. This is important.
* Yeah I know he "said" he wouldn't use the company plane but we're talking about Angelo Mozillo here and need to take everything that comes out of his mouth with a giant grain of If I'd screw you for a nickle, you don't even want to know what I'd do to you for a free ride on the corporate jetTM salt.
A former Countrywide employee informs us that Capital Market layoffs began this morning, with a 30-35 percent reduction in CMBS and 10 percent on the RMBS sales/trading desk. Packages were predictably weak (approximately 3 months on average with bonus allocations from 2007 ranging from 40-60 percent of the prior year, plus one free pass to the Hollywood Tans of their choice), but surveyed to be "better than ML and CS" (and, one hopes, BoA). He didn't make mention of the larger issues-- specifically, being burdened with the task of finding a new employer who furnishes the office with tanning beds instead of desks, and generally, how it'll feel to no longer bask in the reflected glow of the big guy, but we'll check back in a few days, when the shock's worn off, and reality's set in. And by reality setting in, we mean the recognition that each and everyone one of them played a small part in the historic effort of rooking millions of homeowners and investors -- but the spoonful of sugar is that many deserved it. Good luck with your conscience. And the melonoma.
Is Bank of America’s acquisition of Countrywide in trouble? You wouldn’t think so if you’re looking at the spread between where the shares of the two companies are trading. The spread between the shares and the offering price has narrowed dramatically in the last few days, from a high of nearly 25% to the current 15% gap.
But today the Monaco-based hedge fund SRM Global Fund filed a 13D complaining that the merger plan does not deliver “sufficient value” to Countrywide shareholders. SRM has acquired a 5.19% stake in Countrywide.
Most commentary on the deal has focused on whether Bank of America might back out. It has been described as a “bailout” and Bank of America’s role as that of a “White Knight.” The idea that Countrywide’s shareholders would balk at the deal comes as a surprise.
SRM seems to specialize in troubled home lenders. They also have a major stake in Northern Rock.
There’s a shocking story in today’s Post about how Countrywide’s Angelo Mozillo said the company would be profitable in the fourth-quarter and—HOMG—it wasn’t. An investor in Georgia is “a little bit disappointed” that he lost $3,200 and a lot of people are just plain hurt that they were taken for a ride (in AM’s red Iroc, whose plates read: ‘mohazard’). The shocking part is that the paper is supposedly surprised that Mystic Tan man would lie about the mortgage lender’s outlook, even though it’s been established for some time that Ang. would, in his own words, “screw you for a nickel, or a used tanning bed and some UV goggles.” We’d expect this sort of bright-eyed innocence from Andrew Ross Sorkin or Don Klarney but the Post? You guys are supposed to be better—and more versed in jabroni—than that. Oh well. You know we can’t stay mad at you for too long. Not when you’re turning out graphics like that.
There’s little in Countrywide’s earnings announcement that seem likely to shake Bank of America from its desire to own the home lending giant. Indeed, shares of Countrywide moved up this morning and the merger arb gap narrowed to 80% or so, implying that traders are getting more confident the deal will eventually close.
This morning the Wall Street Journal carried an interesting article that claims to explain why Countrywide agreed to sell out to Bank of America. Pressure from ratings agencies and regulators threatened to end the way Countrywide did business, the article claims, and this drove the mortgageer into the arms of Bank of America.
But to really understand the article you have to read it backwards, like a teenager spinning a record backwards to hear the hidden demonic exhortation. The real story here is how the government has been funding Countrywide by lending it money through the Federal Home Loan Banks system and guaranteeing deposits in its CDs through the Federal Deposit Insurance Corp. Countrywide CDs had enormous interest rates, and those government guarantees allowed depositors to derive risk free yields of more than 5% in recent months. As those deposits grew, so did its ability to borrow through the FHLB, which allows borrowing on up to 50% of a home loan banks deposit assets.
In short, these government programs allowed Countrywide to escape the discipline of the marketplace for several months. And it was only recent attention from lawmakers and regulator that cast doubt on the willingness of the government to continue these subsidies.
Merger arbitrageurs were widely expected to be even more concerned about Bank of America’s plan to buy Countrywide Financial yesterday but, surprisingly, they seem to have become more confident. In early morning trading yesterday, Bank of America stock slid 6 percent and Countrywide fell 12 percent. As both stocks hit their lows for the day shortly after 10 am Tuesday morning, the spread between the share prices of the two companies and acquisition price they agreed to more than a week ago grew to its widest level since the deal was announced on January 11th. But as the day wore on, shares of Countrywide climbed back for a gain of 7.86 percent and Bank of America climbed 4 percent, the share prices and the agreed acquisition price narrowed a bit.
We've been talking to our sources at Bank of America (a rapidly dwindling pool of investment bankers who have begun to carry their resumes with them at all times), trying to figure out what the business rationale for buying Countrywide might be. The best answer we've heard is that the deal reduces Countrywide's cost of funding. As a stand alone entity, Countrywide's borrowing costs had grown so high that it was going to be teetering on the verge of insolvency. But as a part of the ginormous BofA, it will be able to greatly reduce those costs to the extent that its business can be very profitable even in the short term.
Felix Salmon over at Portfolio talks to the sources inside his head and comes to a very different conclusion. Salmon thinks it is about Lewis's plan to concentrate on retail banking and get out of investment banking. "Bank of America has now, overnight, become by far the biggest and strongest and most important operator in the world of US mortgages. Over the long term, that status is going to be hugely valuable for Lewis, even if he has to take some write-downs along the way," he writes. "Finally, the Countrywide acquisition solidifies BofA's status as a consumer bank, and helps Lewis's decision to move slowly out of the investment-banking business look strategic."
Our political friends are already crying bailout. They expect there to be some sort of liability limiting move from Washington, DC as part of this deal. The conspiratorial minded set also believe that this confirms that Countrywide really was as close to bankruptcy as many thought yesterday.
But we first learned of this deal from our commenters, who tend to be our best sources for scoops and analysis. So don't let us tell you what to think on this. Let's do it the other way. Tell us what's going on. Why is BofA so hot to buy Countrywide? And would you buy Countrywide if you were Ken Lewis?
Update:Herb Greenberg says the Fed is engineering this deal and that the government will likely provide Bank of America with guarantees limiting the losses. He also quotes Jon Najarian of Optionsmonster.com, on the very, very suspicious options activity prior to the news of this deal breaking.
To say there was HUGE unusual activity in Countrywide Financial ahead of today’s news that Bank America was close to finalizing a deal to buy the troubled mortgage giant would be as surprising as seeing Dennis Kucinich end his presidential run! We show over 304,000 calls traded against 248,000 puts, but the interesting thing here is that the bulk, some 76 percent of these calls were bought before the announcement! To us this means the likelihood of someone being tipped off was quite high. Like Burj Dubai Tower high!
People always say that hindsight is twenty-twenty but that gives the present moment too much credit. In fact, hindsight is usually just as myopic and cloudy as foresight or, well, uhm, just plain sight. Take the mortgage meltdown. Already it’s started to slip the minds of many just how loose things got in the hey day of the mortgage market.
No doc. Low doc. Stated income. All those commercials assuring us that bad credit shouldn’t stand in the way of the American dream, which apparently involved taking on massive amounts of debt to own a home in Florida or the suburbs of Las Vegas. We remember the words, the catch phrases, the scenes of happy couples in their new home. But it’s started to fade, hasn’t it?
Well, in the interest in memory preservation, we’ve decided to bring you the twenty-first issue of the twenty-seventh volume of National Mortgage News. On Monday, February 17, 2004, the National Mortgage News informed its readers that Angelo Mozilo wanted to eliminate downpayments on mortgages. Actually contributing equity to purchase a home is “nonsense,” Mozilo tells the News. He decries credit score requirements as too high.
“The only way we can have a better society,” Mozillo says, “is to make sure those who don’t have a house have the opportunity to get one.”
Welcome, ladies and gentlemen, to the better society.
Countrywide Financial Corp says it still isn’t bankrupt! The largest U.S. mortgage issued an announcement to deny rumors that it was on the verge of filing for bankruptcy.
"There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company," the statement said.
Shares of Countrywide were down 21.3 percent before trading was halted.
So Countrywide made up a bunch of documents related to the bankruptcy case of a Pennsylvania homeowner in order to make an ill-gotten dollar for whatever it is Countrywide employees/shareholders spend their dollars on (afternoons at the dog tracks, mostly). Fabricated a bunch of dates, lied about some stuff pertaining to escrow requirements on a loan, etc, etc, etc. Unfortunately, someone cut some corners, failed to consult the company handbook on how to fuck people and yada yada yada, the courts got involved. A judge said he “can’t get over what [he’s been] told about these recreations,” intuited that “these letters are a smoking gun that something is not right in Denmark,” and now maybe the injured party will get some justice but probably not.
We like to think of ourselves as “with the little guy”-type people (Steve Schwarzman, 5’6”, Ron Blarney, 4’10”) but in this case we will make an exception: if you're too stupid to realize there's nothing about the face of Mystic Tan Man that doesn't say “I will screw you for a dime," you deserve to find yourself in foreclosure.
Countrywide Financial Corp has said the rumors of a possible bankruptcy filing later today are "absolutely false," The Wall Street Journal is reporting.
Update: Reuters is reporting that the company won't return their phone calls.
Update II: We didn't even bother calling. What are they going to say? And would the spokesperson tell us the truth anyway? Would the spokesperson even know if they were filing?
We were listening in on the Countrywide conference call just now—mostly because we didn't know that David Gaffen was liveblogging it so we don't have to—and about four minutes into the thing everything goes haywire. A full minute of what sounds like static and lambs or babies screaming. We just assumed it was a subprime phone line or that Angelo Mozzillo's self-tanner had leaked into the telephone console.
But a reader writes that what actually happened was that somebody hacked the call and started yelling "Mozillo is a criminal." Anybody else hear that part? Can a brother get a confirmation?
Tilt. Another reader asks: "Is Angelo Mozilo's tan getting darker from heat he's taking from the Board, or is it the radiant energy coming off his rapid fast CFC sell execution orders?" He puts it at 50/50.
Update: Countrywide shares up a gazillion percent. The market loves endless conference calls!
So let’s get this straight. Countrywide said it secured $12 billion in credit and that’s good news. Because it shows that the credit markets aren’t totally seized up. Just like every other story we’ve written about today.
We once read something about this. What was it? Oh right: “This is a delusion about credit…the idea that the panacea for debt is credit.” That’s from a book by Garet Garrett, the Saturday Evening Post columnist. It was published in 1932 and it’s called “A Bubble That Broke The World.” It's about the crash of 1929 and the subsequent Great Depression.
It's no surprise that Countrywide Financial Corp. is still financially challenged despite last month's 2 billion bailout by Bank of America. More surprising is the news that more banks are jumping on the bailout bandwagon.
This morning the New York Post reported that another multi-billion dollar bailout plan is in the works for the nation's largest home lender. "Sources familiar with Countrywide's plans said the lender continues to work with Goldman Sachs and law firm Wachtell Lipton Rosen & Katz to structure another strategic investment similar to the deal Bank of America struck last month," the Post's Zach Kouwe reports.
No one yet knows who is behind the bailout, although there is some speculation about JP Morgan and Citigroup. Sources we spoke to this morning say that Goldman has been selling the bailout with a pitch meant to scare banks about the broader housing and mortgage market. The idea is that Countrywide is too big to be allowed to fail, and that if it goes down it might end up causing major collateral damage for anyone with mortgage lending exposure.
“Don’t Buy Stuff You Can’t Afford” is a classic Saturday Night Live skit whose underlying lesson—that you shouldn’t buy what you can’t afford—seems to have been ignored by a lot of those whose financial troubles or outright failures have been making headlines lately. (And, frankly, making the job of writing about the follies, hogwash and bumble-buzzers a bit too easy here at DealBreaker.)
At the heart of the mortgage problem is that many home lenders seem to have adopted the opposite motto: buy what you can’t afford. And more importantly, lend money to customers who can’t afford the repayment terms. How did so many financial institutions—from smaller lending shops to prestigious banks—get drawn into this race toward the bottom?
An article in the LA Times yesterday suggests an answer: the supposedly smartest guys were following the stupidest. Because so many of the stupid guys were making so much money from fees built on stupid mortgages. Sure, they won’t admit that it was a competition to be stupid. Their word is “aggressive” but you know what they mean.
“Countrywide suggests that mortgage pricing and underwriting standards during the housing boom were set by the most aggressive -- that is, least rigorous -- lenders, and that it was all but powerless to impose its own standards,” the LA Times reports.
“Most of the large bank lenders, as well as Countrywide, were limited, slow, reluctant followers behind the lenders who most aggressively relaxed underwriting guidelines," the company said in a written response to a question from The Times.
Just in case this got lost in translation: super-tanned Angelo Mozilo now says his company was “powerless to impose its own standards.” How did it lose the power to set its standards? The answer seems to be that it was hypnotized by the lure of fees and profits that others would reap if it didn’t cast its standards to the wind.
A bit of historical reflection on how we got here after the jump.
Well, everyone, syphilis is on the rise. The Department of Health reports that cases of Cupid's disease in the city increased sixty percent last year. Who do we have to blame for this? Nominations include Jim Simons, Cody and Cavuto, and Angelo Mozilo, the last one being most plausible, considering his (tanning) bed-hopping frequency. Hopefully, today's testimony before Congress will shed some light. In the meantime-- any other culprits you can think of? The shareholders have a right to know.
