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Speculation on Sale Drives Up Shares of Countrywide Credit

Lending: Mortgage giant's CEO says his position is unchanged, but he would consider a substantial offer. Stock zooms more than 20%.


Shares of mortgage giant Countrywide Credit Industries Inc. shot up more than 20% Tuesday on speculation that founder and longtime chief executive Angelo Mozilo was moving to sell the company.

"There has been no fundamental change in my attitude. If a substantial offer was made that was in the best interest of shareholders, employees and the company, we would have to consider it," Mozilo told The Times.

The trade journal American Banker, in its Tuesday edition, characterized similar comments by Mozilo as a reversal of his long-standing view that Countrywide, the nation's third-largest originator of home loans, should remain independent and said he would consider selling the company.

Wall Street reacted as though Countrywide were in play, even on a day when the Federal Reserve raised short-term interest rates by half a percentage point, a move generally seen as bad for mortgage companies. Shares of Calabasas-based Countrywide rose $6.06, or 22% to close at $33.75, making it the second largest percentage gainer in New York Stock Exchange trading Tuesday. Trading volume topped 3.5 million shares.

Mozilo said he was "startled" by Wall Street's reaction, though he believes the stock is "far below Countrywide's intrinsic value."

Some analysts interpreted Mozilo's comments as a calculated move to draw the interest of the banking industry, which now dominates mortgage lending. A suitor would be acquiring one of the top brand names in home lending, a wide distribution network and a sophisticated loan servicing system.

"I bet every investment banker in the nation is charging out to Southern California right now," said Richard Bove, an analyst with Raymond James Financial in St. Petersburg, Fla. "I don't think Mozilo will sign a deal with any of them but he will say, 'Bring on the offers.' "

Countrywide has been caught in a malaise that has spread throughout the industry in the past year as the Fed has moved six times to raise interest rates to cool a torrid economy. Rate hikes typically reduce home mortgage lending and refinancing by increasing the amount consumers pay on loans.

Loan originations in the first quarter of the year fell to $200 billion from $351 billion in the same period a year earlier, according to the Mortgage Bankers Assn.

Though Countrywide shares jumped Tuesday, they are still 25% below their 52-week high of $45.25 reached June 21.

Countrywide, which makes its money from the fees charged to write and service home loans, generated $75.4 billion in mortgages last year, giving it 5.8% of the market, according to Inside Mortgage Finance Publications Inc. Countrywide was the only company of the top five loan originators that was not a part of a major U.S. bank.

Though Countrywide sells the loans it writes, it still needs to come up with the money to fund the loans prior to the sale.

Mozilo said that although Countrywide's competitors have changed from other mortgage banks to the nation's largest banks, he still believes his company can efficiently compete.

"We have been through a period where any idiot could make money and look good in this business," Mozilo said. But now the banks will have to look carefully at their operations and evaluate if it is right for them, he said.

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