Market Does Not Believe Countrywide's Denial

Rumors were swirling today of a pending bankruptcy by Countrywide Financial (CFC). Countrywide has denied those rumors. Bloomberg has the story: Countrywide Loses Most Since 1987 on Funding Wagers.

Countrywide Financial Corp. dropped the most in two decades in New York trading on speculation that it needs cash to continue operating its mortgage business.

Investors drove Countrywide shares down 79 percent last year on concern the company was suffering from a cash shortage. The company tapped emergency credit lines and got a bailout from Bank of America Corp. as the worst housing slump in 16 years fueled bets that Countrywide might seek bankruptcy court protection.

"There is no substance to the rumor that Countrywide is planning to file for bankruptcy," spokesman Rick Simon said in a statement. Countrywide has said it has adequate liquidity to run its business and predicted in October that it will be profitable this year. The company posted its first loss in 25 years during the third quarter.

Credit-default swaps tied to Countrywide's debt soared to a record as investors demanded as much as 30 percent upfront and 5 percent a year to protect from a Countrywide default for five years, according to broker Phoenix Partners Group in New York. Yesterday, investors were demanding 20 percent upfront and 5 percent a year. Contracts trade on upfront payments when the market sees a high risk of default.

Countrywide Daily Chart



Countrywide 5-Minute Chart

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Minyanville's founder Todd Harrison had this to say earlier today.

Countrywide is regressing before our very eyes.

• When Bank America (BAC) injected billions, the stock was at voting age.
• On Halloween, she was a super sweet sixteen.
• Thanksgiving? Bat Mizvah central.
• Christmas? A hat size.
• Now, this pup can fit on a ring finger (with small hands at that).
• My point? Cheap can get "cheaper" and defining risk, rather than scaling in is tremendously important.

Here's my comment: If the Market does not believe Countrywide's denial why should I?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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