Mozilo severance: $110 million and change

If he engineers a sale of battered Countrywide Financial to Bank of America, Countrywide CEO Angelo Mozilo stands to walk away with a severance package worth more than $110 million, the Los Angeles Times' Kathy Kristof reports tonight.

Such a payout would come on top of huge gains Mozilo has made selling Countrywide stock during the mortgage crisis. As the mortgage industry went into a nose dive in late 2006 and 2007, Mozilo cashed out about $140 million in stock options, becoming one of the highest-paid executives in the country, the L.A. Times reported in November.

The newspaper reports tonight that in his contract agreement, which extended the 69-year-old's employment contract through 2009, Mozilo was guaranteed three times his base salary, plus a cash payment equal to three times the greater of his average bonus or the incentive bonus paid the previous year. Net value: $87.8 million.

In addition, Mozilo has two pensions that his severance agreement gives him the right to receive as a lump sum upon his departure. Those pensions were worth $24 million as of December 2006, the last time the company was required to report their value.

There is more. The Times reports Mozilo would receive continuing health benefits for life for himself and his spouse, three years of life and financial planning benefits, and "tax-gross-up payments" to compensate him for any penalties he'd have to pay for receiving payments the IRS might consider excessive.

Given the slashing of 10,900 jobs at Countrywide this year, and the 81% decline in Countrywide stock over the last year, it is likely Mozilo's severage package will prove more controversial than his previous stock sales.

Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com
Photo Credit: Bloomberg

Comments

[joe shmoe]

and free sun tan lotion for the rest of his natural (natural???) life

Joe

[perks]

Geez, $110 mill? I gotta start learning how to run a major company into the ground...

[JamesW]

As a former employee I have no problem with this.

Mozilo was not a hired gun, he was a co-founder of the company and spent countless hours of his useful years making riches for himself, employees, and shareholders.

He deserves all the money he can get.

[Victor the Predictor]

How many CW employees are left? Much smaller pie to split up now if they distribute his billion dollar fortune. Boy is he going to get old fast if all he has to do is tend to his olive grove. I predict there will be lots of drooling in coming years. Adult diapers. Early dementia that will lead to him saying things like: "G5 pretty. Pretty toy plane," or "would you like some loans, little boy?"

[Big Fella]

Angelo Mozilo, the Ken Lay of 2008. The fat cats keep getting fatter and the rest of us pay for it, again and again and again.

[Mister Tee]

I would proudly support a $110 million diamond encrusted parachute for Godzilo.

Just as long as his "neither admit nor deny wrongdoing" fines exceed $200 million.

Fair is fair.

[lookoutdownbelow]

As a former employee, this company was and still is being run by a bunch of pompus asses.

This guy just seems to have been too lucky (especially if he pulls this off).

I left after a short while (I sued and won as well.)

I hope the upper brass go to jail or, better yet, down under.

[Big Fella]

JamesW:

While Angelo might have been the founder and spent countless hours developing the business, he failed in his fiduciary duties, and ultimately was a poor steward for his stockholders. He let greed filter his decisions.

He does not deserve to unjustly reward himself when he walks away. He and all of the other greedy "financial wizards" in this country are raping and pillaging our economy. Who do you think is going to have to pay the price to bail these failed financial enterprises out?

Do you remember the savings and loan crisis of the 1980's/1990's? Are you prepared as a taxpayer to bail out the banking industry as the dominoes fall?

http://FIGHTPTSD.ORG

[vultur]

Wall Street wheel of fortune goes round and round!

Sophisticated investors learned the following at an early age:

unless you're managing money for 3rd parties and generating fees to do it you are a complete fool to invest in public equities markets.

Angie Mo will probably have to escrow a few mil to cover all the shareholder derivative lawsuits and in the end I suspect the hundreds of million he pocked will have come at quite a steep price in the form of years off his life.

I might add,

if he founded the company then he should have negotiated his compensation as a founder through equity, not a salary that is perversely related to the companies performance under his tenure in 2007.

[bode]

Well, it looks like this blog won't have CFC to kick around as a scapegoat much longer. I'd like to point out that the comparisons to Enron are not well-founded: Enron was accounting fraud, pure and simple. The problems that are sinking CFC are the same that have cost a number of CEOs their jobs over the past few months: Charles Prince (Citigroup), James Cayne (Bear Stears), Stan O'Neal (Merril Lynch). CFC is just one player in the global mortgage industry, and the issues that CFC is facing are the same that cost those men their highly-paid jobs (just for comparison, O'Neal was said to receive about 165m in parting gifts). This isn't Enron, it's an entire industry gone awry, with the potential to take the entire economy with it. Mozilo might pay a few dollars in fines but he's not going to jail, nor is there even the suggestion that any CFC executive is going to jail. Companies get fined for predatory lending practices; no one ever goes to jail.

Yesterday someone opined that once BAC acquires CFC, "real bankers" will be running the show. I'd suggest that very few of the smartest minds on Wall Street have avoided this debacle, which is why I continue to feel that CFC has been unfairly maligned by the mainstream media. Maybe we should start an LA Land pool as to who the next scapegoat will be? My money is on WAMU and the boatload of option ARM mortgages quietly negatively amortizing in California as we speak. Regardless, I'm sure all the people who can't wait for the bubble to collapse also can't wait to pay more for insurance, more for car registration, and, realistically, more income tax. Oh, and receive fewer public services. That's what a recession means, and it's absolutely what we've got. Every time a CFC fails, it's making stability that much harder, and our state that much more in debt (sound familiar?).

Finally, because I know most of the people who read this blog were rooting for a CFC bankrupcy and an explosion in Calabassas, I want to quote tonight's WSJ article on the potential merger:

"More broadly, a failure of Countrywide would have posed a major risk to the U.S. economy, since the lender services about one of every six loans in the country. Bankruptcy likely would have shifted huge financial risk to Fannie Mae and Freddie Mac."

CFC isn't very good at what they do anyway. Imagine what would happen if they threw their hands in the air and mailed the keys in?

[AJ]

How convenient.
Pump and dump.
Or dump and pump.
And now corporate B of A is now "saving the day"....
What fools are we to be sucked into this vortex of wallstreet mania....
The flush of a toilet of waste
Or the rush of a back up
Run...

[Hula Girl]

JamesW is Mozillo's pen name on Match.com

[Lisa]

Wow. I've got a torch. Anybody got a pitchfork?

[Ali A.]

I'm glad Countrywide is being sold to Bank Of America. I cant stand that company. I think the government should send him to Guantanamo to send a message to other CEOs. Don't mess with people's money and lives. This will make those fat cats more humble and respectfully of people.

[Cal]

OT: I noticed a spike in sales the last two weeks in a zip in Simi. I thought it was odd to see but then seeing what sold it all came clearer:

$937,000 on Clarkia St
$809,000 on Clarkia St
$720,000 on Clarkia St
$800,000 on Clarkia St
$874,000 on Clarkia St

5 homes in a new housing tract owned by Standard Pacific Homes (The Bluffs in Big Sky). How stupid does the guy paying $937 feel next to the guy paying $720.

$771,000 on Wetherby St
$900,000 on Wetherby St
$925,000 on Wetherby St
$1,170,000 on Wetherby St
$818,000 on Wetherby St
$840,000 on Wetherby St

6 homes by Richmond America the Brentwood tract in Simi.

Now the guys paying $900k can at least feel superior to the guy that paid 1.17 million. But everyone has got to be worried about the house closing at $771k. 400k difference.. not just in the same tract.... the same STREET!

New home builders appear to be motivated and they also appear to be experts separating the suckers from their money. If I was the guys sitting in the house at 771k.. I would still be feeling very nervous if there were more homes left to sell.

[Ace]

Sure he'll get a couple hundred million... but his house went down in value by 20 percent and his ARM is scheduled to reset in June.

[lurker]

http://blogs.marketwatch.com/greenberg/
2008/01/the-real-story-on-countrywide/

Updated: The Real Story on Countrywide….
4:54:56 PM January 10th, 2008 Permalink | Comments (69)

Updated to show Jon Najarian options insight.

We’ll know it soon enough, but with the leak that Bank of America is near acquiring Countrywide, several things would appear apparent (at least while we’re playing the guessing game):

1. The Fed is behind the deal.
2. The Fed is behind the deal because the rumors yesterday of a near bankruptcy were probably true.
3. As part of the deal, the government likely agrees to guarantee BofA against Countrywide-related losses.
4. Lost in the in the noise yesterday was that Moody’s downgraded the ratings on 30 (count ‘em — THIRTY!) tranches of Countrywide’s mortgage debt by more than a few notches. They did something similar before American Home Mortgage filed for bankruptcy.
5. Investors bid the stock higher assuming a premium when it’s likely that BofA still needs to fully assess the value of the assets before the deal’s full value will be known.
6. Big question, of course, is what Countrywide investors will get.
7. Rule of thumb with bankruptcies: Stocks often double on their way to zero.
8. BofA gets a free bank and a put to the government.

Menawhile, Jon Najarian of Optionsmonster.com writes, “To say there was HUGE unusual activity in Countrywide Financial ahead of today’s news that Bank America was close to finalizing a deal to buy the troubled mortgage giant would be as surprising as seeing Dennis Kucinich end his presidential run! We show over 304,000 calls traded against 248,000 puts, but the interesting thing here is that the bulk, some 76 percent of these calls were bought before the announcement! To us this means the likelihood of someone being tipped off was quite high. Like Burj Dubai Tower high!”

Onward.

[Cal]

NY Times is reporting its 4 billion in stock which would be 6.92 a share.

If you consider that BofA has 16% of the shares already, it is around 5.81 a share. BofA (by my estimation) should have received $48 million in payments on the $2 billion it fronted countrywide. After all the insiders are paid off I bet the final price for the regular shareholders is in the $5.50 neighborhood for which they will get BofA stock (currently trading around $40).

There is no buyout premium here.. if the numbers are true the stock is overvalued by 11% (counting BofA shares, or 25% countying the 16% discount). This is my completely amateur read based on anonymous "facts" provided by the NY times. If my read is correct the stock should drop tmw.

[Brian]

There has been a lot of criticism of the LA Times for ignoring the local Southern California market in pursuit of glory as a leading national paper competing with the New York Times, Wall Street Journal and Washington Post. Today's website seems to illustrate that. I opened up the New York Times webpage -- Countrywide is the top story. Wall Street Journal -- Countrywide. LA Times? Arnold's budget. Economy going south. Gang killings down. Edmund Hillary dead. Chinese bureaucrats training at Cal Poly. well, it must be the top California story. Whoops. Abusive husband story. City Hall. Surely it must be the top business stories. Nope. Condo plans for Boyle Heights. It appears only on this blog is this considered a big story.

[Victor the Predictor]

News Flash: Per cnbc, Bofa agrees to purchase CW for $48 Billion / $7.75 per share (unverified), to close in Q3.

Gretchen Morgenson of the NYT doesn't sleep

She's got her teeth on the neck of this story like a lion that's taken down a baby wildebeast. Some highlights from her article this morning:

"Directors for both companies have approved the deal, which is expected to be announced Friday, these people said. " (Would love to find out who these people are. We need deep-throats to give us more behind the scnes info)

"the people briefed on the deal said that negotiations had been going on for about a month."

"...just last March, as the subprime crisis was starting to unfold, Mr. Mozilo crowed that Countrywide would benefit from the spreading mess. “This will be great for Countrywide,” he told an interviewer, “because at the end of the day, all of the irrational competitors will be gone."

[Victor the Predictor]

Correction: WSJ has purchase price at $4 Billion.

[Anonymous Coward]

Kind of repugnant that thousands of people's jobs, homes, livelihoods could depend on how many millions one guy rakes in. Good to know the captain has a private rowboat ready while the rest of the ship sinks.

[Uncle Billy]

Charles Gasparino, the on-air editor at cnbc is exploding with news this morning... as are many others... JP Morgan to purchase Britain's Northern Rock's mortgage portfolio. JP Morgan in preliminary talks to buy Wamu??? Merill Lynch to take $15B writedown? Looking for cash infusion from those foreign sovereign funds again (asia, middle east). The elephants are stampeding. Heard some predictions this morning that Mozillo will take a "vice chairman type role" at BofA, and then head off into the sunset to maintain his tan." It's hard to maintain tans while the sun sets. Maybe that was their point.

[Michael Snyder]

Good work if you can get it!
Actually Mozillo belongs in prison for his shenanigans last year. To give him such a buy out is nothing shy of insulting to the thousands of stockholders who've seen their 401ks evaporate and the thousands of former CFC employees now unemployed.
Bloomberg's reporting Meryl is taking another $15 billion write-down on "subprime" today. The real subprime instruments are the vastly over-leveraged CDOs that these "financial geniuses" were selling each other.
Kind of reminds me of the Talk Show Hosts all making the rounds of each other's shows.
bode,
With the exception of a few uneducated trolls I really don't see anyone cheering for a collapse of the real estate market. The "Orange Man" makes a wonderful high profile target, but he has plenty of company in Ameriquest, WAMU etc.
We're all on this rock together and most of us realize the implications of that. I for one would love to see some health restored to the market, but that will require a level of transparency we're not likely to see for some time.

[Ollie]

I find it interesting to see the interplay between the defenders of Countrywide (few, some earlier posts in the summer obviously from PR flacks) and those who wish to be orange man drawn and quartered (legion) . Not being from California, never an investor or customer of the company, I don't have an emotional reaction either way. But to respond to bode, I think many of the posters on these boards react to the hypocrisy of the company, and especially its CEO.

He accepts humanitarian awards for increasing homeownership rates among minority borrowers, and then later blames Congress for forcing him into making imprudent loans to people who can't pay them back.

He gives interviews where he publicly touts the company's prospects while the housing market is imploding, and quietly adjusts his share sales program (twice) to dump more stock quicker.

He blames competitors recklessness for inventing creative financing programs, but it's pretty hard to do when you're the largest lender (by far) in the market.

And now, we find out the details of his golden parachute. While investors in the company's stock have lost 88% of their value this year, he will walk away with a $110 million buyout. Meanwhile, estimates are anywhere from one third to one half of the employees of the company will likely be gone.