The Wall Street Journal-20080130-Countrywide Posts --36-421-9 Million Loss for Quarter- Results Underscore Challenges Facing Bank of America

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Countrywide Posts $421.9 Million Loss for Quarter; Results Underscore Challenges Facing Bank of America

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Countrywide Financial Corp. reported a loss of $421.9 million for the fourth quarter as growing defaults and declining home prices battered the U.S.'s largest mortgage lender by loan volume.

The loss underscores the challenges facing Bank of America Corp., which agreed three weeks ago to acquire Countrywide for about $4 billion in stock. Bank of America's chairman and chief executive officer, Kenneth Lewis, said at an investor conference in New York that the Countrywide results were consistent with his bank's expectations. "At this point everything is a go to complete this transaction," Mr. Lewis said. The deal is due to be completed in the third quarter.

Countrywide's loss works out to 79 cents a share. Analysts surveyed by Thomson Financial had expected a loss of 30 cents a share. In late October, Countrywide had predicted that it would earn 25 cents to 75 cents a share in the fourth quarter, and the Calabasas, Calif., company hadn't updated that forecast.

In the year-earlier quarter, Countrywide reported earnings of $621.6 million, or $1.01 a share.

Countrywide's results marked an improvement from the third quarter, when it had a loss of $1.2 billion, or $2.85 a share. The improvement partly reflects a smaller loss on the core mortgage-lending operation as Countrywide adopted stricter lending standards and made more loans it could sell at a profit.

Despite the loss, Countrywide declared a quarterly dividend of 15 cents per common share, unchanged. That dividend costs the company about $87 million a quarter. Maintaining the dividend "can be viewed as a minor concession to investors" disappointed that Countrywide is to be sold at a price about 80% below its year-earlier market value, said Frederick Cannon, an analyst at Keefe, Bruyette & Woods in San Francisco.

Countrywide's latest balance sheet shows a book value of $22 a share, Mr. Cannon said. Based on Bank of America's current share price, its offer for Countrywide values the company at about $7.64 a share.

Mr. Cannon said Bank of America is discounting the stated book value and taking into account contingent liabilities such as pending lawsuits and the risk of investors forcing Countrywide to buy back soured loans.

Countrywide shares closed yesterday up 6.1% to $6.31 a share on the New York Stock Exchange. The stock continues to trade well below the planned acquisition price as investors factor in the risk that the deal could fall through or be renegotiated.

Countrywide made a provision of $924 million for credit losses in the fourth quarter, compared with provisions of $73 million a year earlier and $937 million in the third quarter. The company also wrote down by $831 million in the latest quarter the value of its "residual" interests in securities backed by mortgages.

Countrywide's savings bank held about $86 billion of loans for investment at year end. Payments were 90 days or more overdue on 3% of loans at the end of 2007, up from 1.7% Sept. 30 and 0.7% at the end of 2006. Nonperforming loans totaled 2.55% of assets at the end of 2007, up from 0.63% a year before.

Foreclosed real estate and other properties acquired in settlement of loans totaled $807.8 million at year end, more than triple the year-earlier level.

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Valerie Bauerlein contributed to this article