Skip to comments.Countrywide CEO sees recession ahead
Posted on 08/25/2007 5:59:22 AM PDT by HydroshockEdited on 08/25/2007 11:43:24 AM PDT by Admin Moderator. [history]
NEW YORK (Reuters) - Countrywide Financial Corp Chief Executive Angelo Mozilo said on Thursday the U.S. housing downturn is likely to lead the country into recession, but that the largest U.S. mortgage lender will survive.
In an interview, Mozilo also said that to promote liquidity, the U.S. Federal Reserve should cut the rate it charges banks to borrow.
Countrywide faced a credit shortage this month as mortgage defaults rose and capital markets tightened. On August 16, it announced an unexpected drawdown of an entire $11.5 billion credit line because it had trouble selling short-term debt.
But on Wednesday, Bank of America Corp said it would invest $2 billion in Countrywide, buying preferred securities convertible into common stock.
This eased fears about Countrywide's fate, which at least two analysts this month had said could include bankruptcy.
Mozilo called the investment a "vote of confidence" and a "priceless endorsement," but said housing and the economy were not out of the woods.
Falling home prices hurt homeowners psychologically and cause them to spend less, he said. The 68-year-old executive has worked in financial services for more than a half century.
"I've seen this movie before, and the ending of the movie always ends up in some form of recession," he said. "I can see the economy slowing down substantially enough to give the regulators, the Fed some pause in what's going to happen next."
Mozilo called on the Bush Administration and Fed Chairman Ben Bernanke to state that they will not allow the housing environment to get out of control.
Last Friday, the Fed cut the discount rate at which it lends to banks to 5.75 percent. Mozilo said it should be reduced so that it is the same as the federal funds rate, now 5.25 percent.
Others agree that more is needed.
"The Fed has cut the discount rate and added liquidity to the markets but those things aren't enough to turn the fundamental market around," said Phil Orlando, chief equity market strategist at Federated Investors in New York. He said the funds rate should be cut to 4.25 percent by year end.
GOING IT ALONE
Analysts have said Countrywide might lose mortgage market share to well-diversified commercial banks with deeper balance sheets, including Bank of America, Citigroup Inc, JPMorgan Chase & Co and Wachovia Corp.
Countrywide held a 17.4 percent market share from January to June, according to the Inside Mortgage Finance newsletter.
The Bank of America investment also raised speculation that the Charlotte, North Carolina-based company might eventually buy Countrywide, which Mozilo helped launch in 1969.
Mozilo said that was not happening. "We've gone it alone for 40 years and can go it alone for another 40 years," he said.
In an interview with CNBC television, Mozilo said markets are in "one of the greatest panics I've ever seen in 55 years in financial services."
Still, he rejected as "irresponsible and baseless" an August 15 report by Merrill Lynch & Co analyst Kenneth Bruce that downgraded Countrywide to "sell" from "buy" and said the company might face bankruptcy if market conditions worsen.
"There is no more chance for bankruptcy today for Countrywide than there was six months ago, a year ago, two years ago, and when the stock was $45 a share," Mozilo said on CNBC. "We're a very solid company."
Merrill spokeswoman Carrie Gray declined to respond to Mozilo's comments, and said Bruce wasn't granting interviews.
Countrywide shares closed up 20 cents at $22.02. They have fallen 48 percent this year.
(Additional reporting by Joseph A. Giannone, Ellis Mnyandu and Dan Wilchins)
For his company at least he maybe right.
I suppose the bankrupcy lawyers see a giant boom ahead.
That and accountants to figure out this train wreck.
This guy loses his butt giving someone elses money away and that is supposed to reflect on the whole economy?
Sorry - I’m not biting
He seems a little Shysterish to me.
He said he was surprised that new housing was up and people werent less optomistic. In fact he said he had several large companies wanting to invest with him but he chose Bank of America.
Well, his prognostications weren’t so hot when it came to predicting the future of the sub-prime market, back when he elected to jump in with both feet.
He's right. The yield curve never should have been inverted in the first place.
Like he knows? To bad he didn’t see bankruptcy in the future and manage is company in a little more conservative manner.
1/12 of 1% of our economy... right... I see depression for this man’s company and a Capitalist picking up the pieces and making a fortune in the future.
He’s crying in his soup. His statements are a desperate plea for the Fed to lower rates, in an attempt to save his own bacon.
Capitalism without bankruptcy is like religion without hell.
The widespread use of investment money to fund mortgages is something new. There’s always a learning curve. Americans have always taken risks and jumped in with both feet. It’s messy but we always end up being leaders in the marketplace.
I saw him on Cavuto’s show the other day. Didn’t I see him in “The Godfather?” Or was it “Goodfellas?”
He’s straight from central casting; shiny suit, pointy shoes, etc.
Are you the same guy that called Rush many, many years ago...an attorney?
Nope. Different guy. I did get through to Rush once when he did a local show in NYC. That was a long time ago!
a “spread the misery” moment?
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