Countrywide profit falls short, cutting 2,500 jobs (Reuters)
31.10.2006 13:43 Finance
The company's shares surged higher on plans to lay off more than 2,500 employees and buy back up to $2.5 billion of stock, and as higher profits in other units, including Countrywide Bank, cushioned the mortgage decline.
"Investors expected weakness," said Frederick Cannon, managing director at Keefe, Bruyette & Woods Inc. in San Francisco, who rates Countrywide "market perform." "They got a weak quarter, but not a disaster."
The job cuts, equal to about 4 percent of Countrywide's workforce, will help cut annual costs by more than $500 million by year end, Chief Operating Officer David Sambol said on a conference call. Most of the cuts will be in the fourth quarter.
Net income for Calabasas, California-based Countrywide rose to $647.6 million, or $1.03 per share, from $633.9 million, or $1.03, a year earlier. Revenue rose 4 percent to $2.82 billion, while expenses rose 8 percent to $1.79 billion.
Analysts, on average, forecast profit of $1.08 per share on revenue of $2.96 billion, according to Reuters Estimates.
Pretax profit rose 33 percent to $371 million in banking, and 53 percent to $141 million in capital markets. Insurance profit totaled $91 million, reversing a loss that stemmed in part from Hurricane Katrina.
These gains helped offset a 40 percent drop in mortgage banking pretax profit to $424 million. Loan production slumped 22 percent to $115.1 billion.
In afternoon trading, Countrywide shares rose $1.64, or 4.7 percent, to $36.85 on the New York Stock Exchange.
DIVERSIFICATION
Countrywide originates about one in six U.S. residential mortgages.
It joined Wells Fargo & Co. (NYSE:WFC - news) and Washington Mutual Inc. (NYSE:WM - news), its biggest rivals, in reporting softening mortgage demand. Washington Mutual and subprime lender Ameriquest Mortgage Co. have this year also cut several thousand jobs each.
"Countrywide's investments to diversify away from mortgages are paying off just at the right time in the cycle," said Chris Brendler, a managing director at Stifel, Nicolaus & Co. in Baltimore, who rates Countrywide "buy."
On October 12, the Federal Reserve reported "widespread cooling" in housing, as prices and sales fall and inventories of unsold homes rise.
"We've already had the hard landing," Chief Executive Angelo Mozilo said on the conference call. "You're going to see increasing consolidation over 2007.... This cleansing that takes place as the markets pull back is always healthy in the long run, for both Countrywide and the industry."
BUYBACK
The share buyback covers nearly one-eighth of Countrywide's stock. It includes plans to buy back $1 billion to $2 billion this quarter, financed by issuing hybrid securities yielding about 7 percent.
Countrywide revised its forecast for 2006 profit to $4.10 to $4.50 per share, including the buyback's impact, from $4 to $4.80. Analysts expected $4.37.
"The stability of their earnings is greater than what the market might have expected," said Mark Patterson, managing director at NWQ Investment Management Co. in Los Angeles, which invests $32 billion and owns Countrywide stock.
Pretax loan servicing profit fell 52 percent to $123 million, despite 19 percent growth in Countrywide's servicing portfolio to $1.24 trillion.
The value of mortgage servicing rights, or fees that Countrywide expects by collecting payments from borrowers, fell by $173 million as lower interest rates encouraged refinancings.
Mozilo last week agreed to remain chief executive through 2009, when he will turn 71. His contract provides for a $1.9 million salary and bonus of up to $10 million annually, plus stock-related grants initially valued at $10 million.
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