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Countrywide Shares Plunge on Bankruptcy Rumors

Shares of Countrywide Financial plummeted today on rumors that the company was in serious trouble, with some saying the company would declare bankruptcy this week.

Shares of the embattled mortgage lender were trading down $1.71, or 22.38%, to $5.93 in early afternoon trading on the New York Stock Exchange, the largest single drop since 1987, and the lowest price since March 2000.

Credit default swaps tied to Countrywide’s debt also rose to record levels today, indicating that investors fear the possibility of a bond default.

Interestingly, just months ago Countrywide said it expected to be profitable in the fourth quarter despite a huge decline in lending activity and a $1.2 billion third-quarter loss, its first third-quarter loss in 25 years.

And the big fear now is that depositors will likely pull their money out in droves, and any potential depositors will look elsewhere, creating huge liquidity problems for the struggling lender.

The U.S.’s top mortgage lender is expected to disclose December mortgage lending results as soon as Friday, and will report fourth-quarter results later this month.

***Countrywide halted trading on the NYSE to allow officials to formerly address market speculation that it was planning to seek bankruptcy protection.

“There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company,” Countrywide said in a statement.

When trading resumed, shares of Countrywide (NYSE:CFC) began to improve, but later in the day fell even lower.

Shares of Countrywide dipped as low as $5.05 in trading Tuesday, eventually ending the day at $5.47 despite a flat out denial of a looming bankruptcy.

Bond issuers and mortgage insurers fell sharply on the news, with MBIA Inc. plummeting more than 16% and hitting a record low of $14.77, while Ambac Financial Group Inc. fell more than 21% to a record low of $18.37.

Private mortgage insurance provider MGIC Investment Corp. (NYSE:MTG) dropped more than 13% and PMI Group (NYSE:PMI) shed more than 11%.

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