Could Countrywide Financial (CFC) Possibly Go Bankrupt?

Bankruptcy is a possible scenario for Countrywide Financial Merrill Lynch said on Wednesday, sending the stock tumbling almost 13% to close at $21.29.

This news came as a surprise to many people, who had figured that Countrywide would likely use this turmoil in the credit markets to their advantage, picking off key employees from struggling or bankrupt firms and benefiting from a drop in competition. Countrywide is a massive primary lender in the US, making one out of every seven home loans in the country, and most people had not envisioned any possibility that CFC might actually go under.

The stock has come under pressure in recent days though, after word leaked out that the company was being charged an annualized rate of 12.5% to borrow commercial paper. Then, reports leaked that CFC was reporting that defaults and foreclosures were at their highest levels in at least five years. Then, the cherry on the sundae was Merrill Lynch's report stating that if the market lost confidence in the ability of Countrywide to function properly, then there could be a scenario in which the company would actually seek bankruptcy protection.

I'm not one to point fingers, but it certainly doesn't help the market's confidence in a company when officers are selling shares on a near-daily basis. Angelo Mozilo, co-founder, Chairman and CEO, is selling millions of dollars worth of shares per week. Sure, this is a selling program "designed to diversify Mr. Mozilo", but if your stock is getting lambasted and people are starting to question the long-term viability of the company, it might be a good idea to halt your sales until things stabilize a little bit.

Personally I don't think CFC is going bankrupt; I also think that the company is probably a decent long-term buy at $21. The short-term situation could get a little hairy, so if you are thinking of buying, it might not be a bad idea to wait on the sidelines until things calm down a bit in the credit markets. When that is though is anyone's guess.

Filed under: The Economic Meltdown | General Market News