"When it sold mortgages to investors, Countrywide Home Loans agreed to buy the loans back if they were ever modified in the future to help borrowers make payments. Politicians are clammoring right now for exactly those kinds of modifications, to help struggling homeowners avoid foreclosure. NYTimes: “But Countrywide’s servicing unit may have less incentive to help troubled borrowers who are interested in working out their loans, analysts said, because doing so could put the parent company on the hook to buy back a loan.”
The NYTimes reports those agreements cover $122 billion worth of loans. If, say, 3 percent are troubled, buying those loans would cost Countrywide $3.7 billion – a tall order for a company short on cash."
regardless, it’s just seemingly that way because of the market…if he’s interested, it’s under-valued and probably looking to get it at a bargain…just like all the other companies berkshire hathaway swallows up…
Buffett normally does not purchase companies that have huge problems. Small problems, yes - when the overall company structure is a sound business, that is when he buys. I did a bit more research, and Buffett said these rumors are not correct as of right now. Sort of left a smidge of an opening to purchase later, but who knows.
Countrywide’s debt to equity ratio is trending down, but then so are their earnings per share. Their annual sales growth is in an uptrend especially among their peers. I believe that buying Countrywide now would be risky, at the moment, but you can’t argue with their return on equity. They have been a fair performer over the last five years, and even after falling 56% since February, they are still trading at price levels similar to those in 2003. The point is, Buffet is less a stock investor than a turn around guy, and the market capitalization on Countrywide is second only to Freddie Mac and Washington Mutual. Countrywide is the country’s largest mortgage servicer. There is blood in the water and money to be made. I really don’t see any way that that company could go bankrupt. It could, however, become a hot target for mergers or acquisitions.
On 8/21, I almost made a contrarian buy of Countrywide (knowing full well that it would be risky). I didn’t. If I had, I would be sitting on 20%.
There are definitely storm clouds on the horizon for Countrywide, but their fundamentals are fair, and it stinks of being oversold. Buffet buys companies with correctable problems.
I tend to agree that Countrywide is ripe for an M&A deal. I could easily imagine one of the large banks such as Bank of America making a run at them while they are wounded.