Countrywide CEO Still Gloomy After $2 Billion Capital Infusion

By Mike Caggeso
Staff Writer

Countrywide Financial Corp. CEO Angelo Mozilo said yesterday (Thursday) that the housing market isn’t improving and could sink the United States into a recession.

In answering questions on cable-TV channel CNBC, Mozilo said there is a “very serious situation going on” in the U.S. housing market. “This environment is certainly not getting better,” he said.
These gloomy words came less than 24 hours after Bank of America (NYSE: BAC) pumped $2 billion into Countrywide (NYSE: CFC), the largest U.S. home-mortgage lender, in exchange for convertible securities. The news instilled a big vote of confidence into the market, which opened with a strong start.

Mozilo’s sour words seemed to contradict his earlier upbeat comments when he labeled the Bank of America’s investment as a saving grace. “Bank of America’s investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success,” Mozilo said in a statement.

Mozilo’s grim forecast put a screeching halt to his company’s stock; shares opened 7% higher yesterday morning, only to finish the day 0.92% lower. It also threw a wet blanket on Bank of America, who could have cashed in on a $700 million profit when Countrywide’s stock reached its peak of $24.46.

But looking closely at Mozilo’s careful wording shows that he didn’t flip flop. He’s confident in his company’s ability to get through a potential recession, undoubtedly easier to say after a $2 billion injection from Bank of America. And when asked if a recession is possible, he said yes.

Such an apparent difference can be explained by one word: “if.” Mozilo’s grim forecast was an answer to an 'if' question, which revels in speculation. Yes, it could happen, he said.

Unfortunately for him and the rest of Wall Street, investors buy and sell on emotion. Say the wrong word like “recession” and it’s no surprise investors made Countrywide’s stock pay the price.

60,000 Jobs Lost Because of Credit Crunch

Perhaps the ones who best understand Mozilo’s duality are the workers laid off from lending institutions. The Associated Press reported that 40,000 people in the mortgage field have lost their jobs since the beginning of the year, according to data compiled by outplacement firm Challenger, Gray & Christmas Inc. In addition, nearly 20,000 jobs have been cut in the construction field.

“These kind of mortgage lenders just sprung up like mushrooms and grew like men,” John A. Challenger, chief executive at Challenger, Gray & Christmas, told the AP. “They staffed up and now you have a bust.”

What’s unclear is if the employment scale back is a temporary situation until the mortgage and housing markets pick up again.

And fittingly, Mozilo unintentionally answered that if scenario as well when he said “this environment is certainly not getting better.”