Countrywide Financial Corp, the largest US mortgage lender, sought to reassure investors on Tuesday, declaring it has ample capital, access to cash and is well-positioned to benefit from the financial turmoil rocking the mortgage sector.
The company's statement came amid rumors the Calabasas, California-based company could be looking to seek bankruptcy protection and as its stock tumbled at one point more than 15 percent.
Countrywide shares fell US$0.32 cents, or 3 percent, to US$10.25. At one point, the stock had dropped to a low of US$8.21. Over the past 52 weeks, the stock price has ranged between US$10.25 and US$45.26.
"Countrywide Bank ... has sufficient liquidity available to meet its projected operating and growth needs and has accumulated significant contingent liquidity in response to evolving market conditions," the company said.
The lender has shifted the bulk of its loan funding through its banking arm from sales on the secondary market in the wake of the liquidity crisis that rattled financial markets following a spike in home loan defaults this year.
Countrywide also noted it expects its home lending unit to be able to service debt beyond next year without having to purchase additional debt insurance.
The firm said it had US$35.4 billion in cash available as of Oct. 31, up from US$33.6 billion in the previous month.
Countrywide's stock price decline came as Fox-Pitt, Kelton analyst Howard Shapiro cut his rating on the company to "In Line" from "Outperform."
Shapiro noted in a research note that Countrywide's woes could worsen if the Federal Home Loan Mortgage Corp (Freddie Mac), was forced to scale back how many loans it buys from mortgage lenders.
On Tuesday, Freddie Mac reported it lost US$2 billion in the third quarter and warned it may need to decrease its business unless it can raise new capital.
Like other mortgage lenders, Countrywide pools the home loans it originates and sells them to investment banks and government-backed mortgage banks such as Freddie Mac.
Freddie Mac is the No. 2 US buyer and guarantor of mortgages, after Federal National Mortgage Association (Fannie Mae).
Shapiro speculated the government-sponsored mortgage financier's troubles could result in less funding for lenders, a critical blow at a time when Wall Street investment banks have pulled back on mortgage-backed debt amid rising home-loan defaults.
A reduction in funding from Freddie Mac would hamper Countrywide's ability to originate loans, causing its loan volume to fall further this year, Shapiro wrote.
Last week, Countrywide reported that its mortgage loan fundings dropped 48 percent to US$21.9 billion last month compared to the year-ago month. It posted a loss of US$1.2 billion during the quarter ended Sept. 30.
Management said last month the company would post a profit in the coming quarter and next year.
Still, Moody's Investors Service said on Tuesday there is a possibility Countrywide will post losses in the fourth quarter of this year and first quarter of next year.
Quarterly losses would be tied to further writedowns and expected increases in loan-loss provisions in the upcoming quarter, Craig Emrick, a vice president on Moody's US banking team, said during a conference call.
Moody's did not say it would lower ratings at Countrywide if the lender encountered future quarterly losses. It did however say it would review how those losses affect capital ratios to ensure the bank is maintaining adequate liquidity.
Moody's said it does not foresee future losses "significantly impairing capital," based on stress test scenarios Moody's uses to review credit ratings. On Monday, it reaffirmed its credit ratings for Countrywide, though it kept a negative outlook on the lender.
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