WSJ: Countrywide facing FBI investigation

Breaking news: The Wall Street Journal reports that Countrywide Financial is under investigation for "possible securities fraud": "The Federal Bureau of Investigation is probing sub-prime lender Countrywide Financial Corp. for possible securities fraud, according to law-enforcement officials and finance-industry executives."

More: "The inquiry involves whether company officials made misrepresentations about the company's financial position and the quality of its mortgage loans in securities filings, four people with knowledge of the matter said. It is at an early stage, they emphasized."

The Journal quotes a Countrywide official saying the company is unaware of an FBI investigation.

Published reports have said Countrywide and its chairman, Angelo Mozilo, face several other investigations but the words "possible securities fraud" bring the issue to a new level. Potentially, a much worse level for Countrywide. At some point these investigations begin to pose a risk to Countrywide's possible* future owner, Bank of America. With that in mind, it will be interesting to watch the two stocks Monday, to see whether investors begin betting that the Bank of America takeover will not happen.

Has anybody done the math lately on where Countrywide should be trading based on the B of A offer? I'll try to do it later tonight, but no promises. Update: I've taken a stab at the math, and by that math, Countrywide closed Friday at a 24% discount to the Bank of America offer -- hardly a vote of confidence in the deal. Feel free to correct me or second-guess me. Here's my math: the Bank of America offer is .1822 B of A shares for every Countrywide share. B of A closed Friday at $36.74, which gives the offer a value of $6.69. Countrywide, however, closed at $5.07, a discount of 24%.

*Why just "possible" future parent? Because the deal isn't done, and because some of you have predicted here that it won't get done, and you folks have been right often enough that I listen to you.

Comments? Thoughts? E-mail story tips to peter.viles@latimes.com.
Hat tip: MBob via comments.

Comments

[sunsetbeachguy]

I have been telling you Mozillo is going to go down.

Where there is smoke there is fire. He'll go to jail in about 5 years time.

That how low it took to get Jeff Skilling.

[Michael Snyder]

This is the positive aspect of the fallout from the bond market. Although government aid for consumers is nonexistent and a bailout for bankers a forgone conclusion; until "subprime" hit the government's pocket all we've heard is more hot air. As the fundamental loss of confidence in the packaged debt/bond market has finally come home to roost, the cost of servicing municipal debt has more than tripled in less than a month.

I remember years ago a television news interview where a five year old boy had dialed 911 as the robbers were walking into the convenience store. When asked how he knew they men were going to rob the store his reply was, "Walks like a duck, talks like a duck, must be a duck." Somehow I don't think Mozilo fooled that young man with his "retirement planning" for a heartbeat.

Executive compensation stands at the root of this credit/confidence debacle. To allow the pillage of a corporate entity to compensate a few individuals is at it's core just another form of robbery. Tens of thousands of Countrywide employees and investors have seen their retirements wiped out to enrich one man and the story continues to repeat with painful regularity. From Home Depot to Merrill Lynch, WAMU to Ameriquest the arrogance of these robber barons knows no bounds. It's abundantly clear the systems of "corporate governance" we have in place in America has failed miserably.

Government's inaction until this crisis reached into its' coffers is proof of the complete disconnect between our elected officials and the populace. The cause and effects of this crisis have been apparent at the grass roots for over a year. While the "experts" parse semantics and politicians scramble to distance themselves from the miscreants we the people are left to pay the bill.

[Victor the Predictor]

Could be that's why Angelo looked so contrite and deflated at the hearing? Once again knows something we don't?

There are so many broken clocks in here posting that by sheer numbers we are right 24 times a day.

[Truth2Pwr]

Sucks to be Angelo right now. Think the politicos just might be looking for a few scapegoats to divert attention from their inattention? Methinks so, and me also thinks Mozillo will have plenty of company in the minimum security country club before the Feds are through. Not that any of that will help anyone other than the politicos, who get to look tough on white collar crime. Too bad the criminals basically had to show up on the Capitol steps with Benjamins sticking out of every orifice to get themselves arraigned.

[Jason Hoppe]

Like Kenneth Lay, Angelo will not serve any time. He'd die first.

Or as they would say in Men in Black. You do know Kenneth Lay is dead. No he isn't, he just went home!

[tom a taxpayer]

I expect the FBI will "follow the money" and bring every lawbreaker to justice, wherever they may be, from loan originators to appraisers to homeowner scammers to rating agencies to Wall Street investment firms to bankers to government regulators to the Fed to...?

Ultimately, this will be the financial crime of the century. This is what Congress should be holding investigative hearings on. Instead we have a Congressional circus led by ringmaster Waxman. Waxman, filling in for an absent lion tamer, tried to get three Lion Kings of the Wall Street jungle to jump thru hoops of contrition over executive pay. Instead of a circus about pay, Waxman should have grilled the three Lion Kings about their role in mauling the natives and destroying villages.

Congress should be grilling Angelo Mozilo of Countrywide Financial, Stanley O'Neal of Merrill Lynch and Charles Prince of Citigroup (and others) about their role in possible illegal activities such as the FBI is now investigating.

The dereliction of duty by Congress in investigating the financial crime of the century is a scandal. Unlike Congress's post-mortem investigations of Enron, Congress has every reason to believe the potential illegal activity is continuing and on-going as firms, banks, and federal co-conspirators do what they can to continue the Ponzi scheme or to hide the extent of damage to the banking system, shareholders, pension funds, municipalities, etc.
Congress needs to investigate now, especially to stop any on-going illegal activity by private firms, banks, or federal regulators.

[markl]

the ba deal for cfc is around 5.50 a share...how mozillio,a 70 yr old businessman who has lived through many real estate bubbles,could not foresee a collapse is nuts.How he could not fathom that liar loans would lead to bad things is a farce.He looked as beleivable and unsure as roger clemens at that dc hearing.I loved how he blamed the left wing media for his troubles.

Look at yahoo finance for his insider selling.Its a monstrous amount.Especially in october 2007.

[eastcoastmember]

will this affect countrywide customers with savings accounts or cds?

[Mark Too]

CFC is now trading at around a 32% discount to the conversion rate. That is based on the closing prices of both companies on Friday. It appears that the market thinks that there is significant chance that the deal isn't going through.

It will be interesting to see how the market reacts to the latest news on Monday.

[JUST ANOTHER SPECULATOR]

IF BAC DID NOT DO IT'S DUE DILIGENCE IN LOOKING AT COUNTRYWIDE BOOKS THE FIRST TIME THAT THEY TOOK A POSITION AND THEN FAILED TO DO THE SAME THE SECOND TIME BEFORE MAKING THIER CURRENT OFFER OF $7.68/SHARE, THEN THEY SHOULD ALSO BE UNDER INVESTIGATION FOR POTENTIAL SECURITIES FRAUD TO THEIR SHARE HOLDERS.

WHAT WILL THE GVT UNCOVER THAT BAC DID NOT UNDERSTAND IN ASSESSING A BUSINESS?

LEGISLATORS HAVE NEVER UNDERSTOOD FINANCE AND UNDOUBTEDLY NEVER WILL.

EITHER ONE OF TWO THINGS IS TRUE, COUNTRY WIDE IS A CRIMINAL THAT HAS BEEN SYSTEMATICALLY DEFRAUDING THEIR SHAREHOLDERS AND FLAUNTING REGULATIONS. IMPLYING THAT THE GVT REGULATORS WERE ALSO AT FALUT IN NOT EXECUTING THEIR DUTIES TO PROTECT THE PUBLIC.

OR

COUNTRYWIDE FAILED TO UNDERSTAND THE FACT THAT JUST BECAUSE SOMETHING HAS A PROBABILITY OF HAPPENING ONCE IN A MILLION YEARS, THAT DOES NOT MEAN THAT IT CAN NOT HAPPEN THIS YEAR.

ONLY TIME WILL TELL BUT, GIVEN THE FACT THAT EVERY MAJOR FINANCIAL INSTITUTION IN THE COUNTRY EMPLOYS SIMILAR RISK ASSESSMENT TECHNIQUES AND THEY ALL TOOK AND ARE TAKING SIGNIFICANT LOSSES IN THIS DOWN CYCLE (READ BURSTING OF BUBBLE) THAT THE GVT IS GOING TO CONCLUDE THAT STUPIDITY IS NOT A CRIME. AND YOU CAN NOT LEGISLATE AWAY FAT TAILED EVENTS FROM OCCURRING.

CATEGORIZING THE SECOND LARGEST LENDER IN THE COUNTRY AS A SUB PRIME LENDER AS IF THAT WAS THE ONLY TYPE OF LOAN THAT THEY MADE IS A CRIME IN ITSELF FOR SOMEONE WHO WRITES AS A SUPPOSED EXPERT DELIVERING INFORMATION FOR PUBLIC CONSUMPTION.

THE PUBLIC WOULD BE MUCH BETTER SERVED IF YOU WERE TO PUBLISH INFORMATION RATHER THAN DISINFORMATION OR SPECULATION JUST AS YOU ARE INSINUATING THAT COUNTRYWIDE DID.

IF COUNTRYWIDE HAD REIGNED IN LENDING FOUR YEARS AGO WHEN THE GVT WAS PUMPING DOLLARS OUT DAILY TO 'KEEP THE ECONOMY A FLOAT' WOULD THEY HAVE BEEN ACCUSED OF SOME OTHER CRIME AGAINST HUMANITY?

THE LARGER POSSIBILITY HERE IS THAT THE INVESTIGATION IS A GVT CYA EXERCISE.

EVERYONE HAS A MEMORY THAT EXTENDS BACK JUST LONG ENOUGH TO BE CONVENIENT.

[Michael Snyder]

JUST ANOTHER SPECULATOR,
Please fix your keyboard &/or stop shouting. Your over emphasis on emphasis makes your post difficult to read. mike , mbob, etc. there was only one e. e. cummings. Let's leave it that way.

[Lesley]

First of all.. I am so sick and tired of reading about where the finger is lying this week! Once upon a time, homeownership use to be a pride.. people took seriously when they signed a "note"... borrowerd money in order to own instead of rent. The "so called" bubble should have burst long before it did. Honestly, all I heard from anyone was how it was going to continue. I knew it wouldn't and had to come to a stop some time. The "crisis" wouldn't be so bad today if we didn't have so many defaulters that are walking away for only reasons of greed. "There's no equity".. well of course there isn't! More and more "geedy" people continue to walk away from their homes and rent... they know that they wil be able to buy a home again... EVERYONE NEEDS TO STOP POINTING FINGERS, QUIT DOING INVESTIGATIONS, and FIX the problem. The United States has always been able to work things out within the people that live here, but now is the time for someone to step in.. Investigations and court proceedings and blame games are not helping anyone! It was and is still everyone involved fault. Weird loans, bad mortgage companies, bad realtors, bad appaisers and borrowers signing a contract. Wake up... noone is innocent.

[Michael Snyder]

JUST ANOTHER SPECULATOR,
It took me a few cups of coffee to read past all of your SHOUTING. A few questions; how much are you losing on your investment in CW & BA stock, & when does your loan re-set?

There has been & still is rampant fraud in the "financial derivatives market". Mr. Mozilo is just a very public tip of the iceberg. Last week Bloomberg reported half a dozen firms had been served notice they were under investigation and you can be sure investigators are just scraping the scum off of the pond.

The only reason to homogenize debt is to render the debtors unidentifiable. Common sense would dictate an investor being aware of a borrower's ability to pay along with the specific assets that secured their investment. Instead investors relied on ratings agencies that were way too cozy with the firms and investments they were rating. Now nobody trusts anybody and as a result the market for rated securities has imploded. As a "solution" to this problem, the brain trust on Wall St. has come up with yet another derivative market in the form of credit default swaps. Basically CDSs are yet another hedge bet on a firm's ability to repay a debit. Of course we've rapidly reached a point where after figuring the costs of insurance, re-insurance and CDSs into a corporation's financial picture, calculations show some firms have a greater than 100% chance of not repaying their bills. Don't ask me where or how the "experts" came up with these numbers, but you can read the post on Bloomberg.com http://www.bloomberg.com
The article's titled,"Credit Swaps Thwart Fed's Ease as Debt Costs Surge (Update4)"

The invention of a third layer of "protection" in the bond market is on its' face proof of the markets distrust of itself. You can bet the atmosphere in the19th Hole at Boca Dunes is a little tense today. Back at De Bell the rest of us are left to wonder how much longer our economy can bear the load of unbridled corporate greed and government corruption before we find ourselves in a situation that makes 1927 look like a cakewalk.

We're just a few dozen bloggers sounding off in a local newspaper. To think we have the ear of government and Wall St insiders has been dis-proven many times over. If those "experts" & "representatives" actually listened to what was said in this forum, we'd likely not be on the mess we're in now. But they don't listen to Warren Buffet either so I'm "over it." How about you?

[CD]

Beside the Banks,the NAR should be dismantled completely, it's just a bunch of liars, thieves,crooks, grave robbers.The NAR should be investigated just like any other institution. Yes, lets finger point 24/7 and rebuilt instead of keeping these festering warts(RE agents) Lets bring YUNN and his pals to congress for a talk.
The "refresh listing" the "owner/broker " the "straw buyer" "pending sale" " fell out of escrow lies" the list of deceits is long, one has to hire a lawyer these days if one wants to buy or sell a house.This used to be the biggest purchase in one's life time- buying a house- Now" Homeowner" is just another empty word.

[CD]

This is how our government handle the masses:
TELL US WHAT YOU WANT AND WE WILL SHOW YOU HOW TO DO WITHOUT.

[CD]

Michael Snyder, I think they are starting to hear us.
Today the LA Times business section woke up to the fact : The dollar buys nothing at the market, heating cost are off the chart.We started to discuss it here 6 months ago. It should be front page news today, instead we have our regular killings, blood, sex, rock and roll which defines news these days. But an effort has been made, maybe those Harvard graduate journalists are reading bloggs to get an idea of what the little folks are thinking downthere, at the bottom, maybe they are hearing our shouts. We are not alone. We need a great massive march.....

[Michael Snyder]

CD
Perhaps that's where you should have put your money. Meantime; take a walk in the sunshine, breathe deep and switch to decaf. You need to remember justice only occurs when the victim has been made whole. Since any reasonable person knows we can't even define who's the "victim" in all of this, that's just not going to happen. What we're left with is revenge & while I'm not above a little tar & feathers, the process needs to include the return of pirated funds to the stockholders (401(k)s & retirement funds) who were not enriched by the schemes of top management; not dumped into the governmental black hole of fines, penalties & fees. Meantime; you'll be no good to anybody twitching on the floor & you're probably making your wife miserable. Go for a walk!

[seabassbanker]

SAN FRANCISCO (MarketWatch) -- The Tampa offices of health insurer WellCare Health Plans Inc.[s:wcg] were raided by about 200 federal and state agents Wednesday, the Tampa Fox News affiliate reported. Employees told Fox that agents raided the offices around 10 am ET.

This is what happens when the FBI really has a case. Not, as you failed to mention, an unnamed source leaking the investigation to the WSJ

Furthermore, it ceases to amaze me that, not you, many of these posters who are so quick to assume fraud can't even correctly spell the man's name.

IT IS ANGELO R. MOZILO

thank you

[Lou]

I'm glad to see Mozilo go down but he should not be the only one. The execs at New Century, WMC, Fremont, and the rest of these subprime lenders should all be investigated. Also we shouldn't let the execs at big banks like Washington Mutual and Wells Fargo off easy either.

[Maggie Knowles]

If they can convict Martha Stewart, they should be able to convict Mozilo, I hope he doesn't get away with it.

[CCC]

Where are the auditors in all this?

KPMG is going to be the next Arthur Andersen for turning a blindeye to the rampart fraud

[Raul]

Lesley: of course it is every one fault, like in every ponzy scheme, you have to be greedy to get into, greed makes you blind, that is why scammers call the naive, and inform them, that they won the Australian lottery, and the only thing they have to do is pay $5000.00 in advance to collect one million Dollars. The law does not punish the mentally retarded, the law punishes the scammers. The home owner that bought during 2004-2007 did not design the scheme....Now the people at the top, they knew what they were doing, of all of us, they are the brightest, if you notice they did not lose anything, they are taking their profits and they probably are using that money, for the next scheme, the next buble, maybe comodities, in the meantime we regular people are strugling to feed ours family, those guys are inflating the prices of every thing...... with the complicity or stupidity of our great leaders.

[San Diego Real Estate]

I hope that Countrywide is held accountable. I think that they were a large cause of making money so easily available and with the amount of stocks that were sold off towards the end of Countrywide's run it's fairly obvious that the people on the inside new the stock wasn't going to hold it's value.

[valley observer]

The bubble shows the weakness of comp-based appraisals as a way of valuing collateral. They keep the bubble going as they have no reference point. Maybe we need to eliminate this appraisal method, or it might be enough simply to restrict comps to those where the sale is actually based on the buyer's ability to pay, excluding all those imaginative quasi-fraudulent loan programs. That would tend to cause prices to level off midway through the cycle when buyers at the lower levels of the pyramid who can't pay the true cost of their loans are being led in.

[lefty]

BAC's stock might drop 10% on the day the CFC deal is completed, in addition to all drops before that! in the meantime, the closer the date gets, the higher CFC might go. so your 'profit' could be way down.