Countrywide

Some interesting discussion on the MarketBeat blog (emphasis mine).

Investors jumped for joy on news of Countrywide Financial’s $2 billion gift, er, investment from Bank of America, which got a nice deal by investing in convertible preferred shares, and gets the platitudes for putting down money to help assuage those worried about the going health of one of the nation’s biggest mortgage lenders. Bank of America gets a $2 billion stake that pays them 7.25% annually in interest, and converts to shares at $18 each.

Rob Cox of Breakingviews.com notes: “If Countrywide’s recent woes are primarily liquidity driven — that is, they are simply a consequence of the bank’s inability to fund itself – then BofA boss Ken Lewis’ investment will prove masterful.” But Doug Kass of Seabreeze Partners Management, who is shorting Countrywide, notes that “the discounted strike price of its non-voting preferred security speaks volumes about Bank of America’s financial and operating concerns facing Countrywide Financial.” After all, the housing shakeout isn’t over, and Countrywide holds nearly $30 billion of option ARM mortgages, where defaults are rising, according to Breakingviews.

John Succo, in Minyanville, agrees, saying the terms of the deal were “struck at egregious terms for CFC,” and it will dilute earnings. It’s hard to know whether to take comfort from CEO Angelo Mozilo’s interview on CNBC, either — within the span of a few minutes he’s blamed the current problems on the Federal Reserve, frightened investors, and worried sell-side analysts (Merrill Lynch in particular). “The problem at Countrywide Financial is that it originated crappy loans — thats how it got into the problem in the first place,” Mr. Kass writes in an email.

Note that Countrywide common shares have fallen 38% in one month, from $34 to $21.