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Countrywide profit solid in tough market

CEO Angelo Mozilo expresses confidence in the mortgage lender in the face of new rivalry from big banks.

January 31, 2007|E. Scott Reckard | Times Staff Writer

Reporting solid earnings in a brutal environment for mortgage lending, Countrywide Financial Corp. Chief Executive Angelo R. Mozilo sounded unfazed Tuesday at increased competition from big commercial banks and Wall Street firms.

Larger, more diversified banking firms treat mortgages "as a side business, a tertiary business, and they get tertiary results," Mozilo said in a quarterly earnings conference call with analysts.

Mozilo co-founded Calabasas-based Countrywide in 1969, and it is now the No. 1 home lender in the U.S. He said only "a couple" of big banks truly understood mortgages, and mentioned only one by name: Wells Fargo & Co.

Countrywide's fourth-quarter profit totaled $622 million, or $1.01 a share, down 3% from $639 million, or $1.03 a share, for the same period in 2005. Revenue rose 6% to $2.8 billion. For the year, earnings rose 6% to $2.7 billion, with revenue up 14% at $11.4 billion.

The results fell just short of Wall Street estimates, but Countrywide shares closed up 15 cents at $43.53.

Many analysts considered the earnings reassuring given that the home-loan market confronts a long list of troubles, including rising delinquencies, declining home sales, flat or lower housing prices, tougher scrutiny by regulators and investors, and profit margins shrunken by competition.

Seattle's Washington Mutual Inc., the No. 1 savings and loan, recently reported a $122-million quarterly loss on its home-loan operation, and Pasadena's IndyMac Bancorp, another mortgage specialist, saw its stock tumble as it badly missed fourth-quarter estimates and slashed its earnings forecast for this year.

Against that backdrop, "there were fears that Countrywide's quarter was going to be a lot nastier than it turned out," said Piper Jaffray & Co. analyst Robert Napoli.

Many big financial companies have plunged into mortgage lending of late, trying to scoop up home lenders cheaply. Their long-term goal is to make money by selling mortgage-backed securities to an eager global market or by selling their home-loan customers other types of loans, deposit accounts and credit cards.

Bottom-fishing in especially turbulent waters, several Wall Street firms have purchased specialists in "sub-prime" loans to risky borrowers -- a business that Mozilo said Countrywide has backed away from as loan delinquencies have shot up.

"In terms of the Wall Street houses, some will succeed and most will not," Mozilo said, citing as an example of the latter Merrill Lynch & Co.'s loss of a $100-million investment in Agoura Hills-based sub-prime lender Ownit Mortgage Solutions Inc.

When Merrill cut off funding in December, Ownit filed for bankruptcy protection. The filing showed that Merrill also held $93 million in soured loans it had purchased from Ownit.

As Mozilo perceived the events, it was a "prime example of a well-intentioned company that doesn't understand the true vagaries of our business."

Banks with big retail operations also are buying big mortgage lenders. Examples include Wachovia Corp.'s takeover last year of Oakland's Golden West Financial Corp. and Citigroup's deal last week to buy Dutch-owned ABN Amro Mortgage Group.

Bank of America Corp. also has said it will expand home lending. But Mozilo declined to comment on a Financial Times story Friday that said BofA and Countrywide were in talks that could lead to an alliance.

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