Paper Economy: Mozilo’s Island

Monday, April 09, 2007

Mozilo’s Island

Given the relative strength shown by Countrywide Financial (NYSY:CFC) throughout some of the worst initial tumult of the subprime meltdown, one wonders whether CEO Angelo Mozilo can continue to maintain his island paradise or whether it will buckle under the strain leaving him looking more like Herve Villechaize stamping angrily from the shores of Lilliput.

This month may mark a bit of a turning point for Countrywide as it faces two significant challenges to its buoyancy.

First, on Thursday afternoon, it was reported that a lawyer representing The Louisiana Municipal Police Employees Retirement System, a Countrywide Financial shareholder, successfully argued for the right to move forward on an options backdating probe that will see an additional trial for the Countrywide “books and records” on April 18.

To be fair, it appears that the The Louisiana Municipal Police Employees Retirement System is a fairly active shareholder, suing a whole host of other public companies for various indiscretions including options backdating.

Furthermore, on April 26, Countrywide will release its first quarter 2007 earnings and host a conference call to review the results.

The results are particularly important as it will shed some additional light on the extent to which Countrywide has been impacted by the subprime meltdown as well as the even more important spillover effects on their “pseudo-prime” business.

As a possible harbinger of things to come for Countrywide, competitor American Home Mortgage reduced their expectations for first quarter results in a pre-announcement last Friday citing significant pressure coming from their Alt-A loans.

“A disproportionate share of the Company's non-performing loans are repurchased Alternate "A" loans. The Company has ceased offering those types of Alternate "A" loans that have resulted in a high proportion of its repurchases, and consequently believes the portion of delinquency related charge resulting from repurchases will diminish toward year-end.”