The top U.S. mortgage lender reported third-quarter earnings this morning, revealing a $1.2 billion loss, its first quarterly loss in 25 years.
But shares of the beleaguered lender leapt on the prospect that the worst was behind the company, with a predicted return to profitability as soon as the fourth quarter of 2007.
“We view the third quarter of 2007 as an earnings trough, and anticipate that the company will be profitable in the fourth quarter and in 2008,” said President David Sambol, in a statement.
“Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive.”
Analysts weren’t so convinced, with Chris Brendler of Stifel Nicolaus & Co. Inc. saying, “They seem to have taken some big write-downs, taken a lot pain this quarter, the pain going forward should be smaller.”
“I still remain concerned about the potential for another credit write-down and just how profitable this business will be, even after they get past the credit headaches in the near term.”
Countrywide lost $2.85 a share for the July-September period compared to a profit of $647.6 million, or $1.03 a share a year ago.
Analysts polled by Thomson Financial had expected the lending giant to announce a loss of $1.28 per share for the quarter, though just a couple months ago many had expected a profit.
Chairman Angelo Mozilo blamed the poor performance on “unprecedented disruptions” but said, “We continue to be bullish about the long-term prospects of both Countrywide and our industry.”
A number of startling statistics were also revealed, including loan loss provisions on bad loans, which rose to $934 million from $38 million in the same quarter a year ago.
Roughly 4.41% of Countrywide’s conventional first mortgages were delinquent as of September 30th, up from 2.57% a year earlier, while the number of delinquent subprime loans rose substantially to 29.08% compared with 18.32% in the third quarter last year.
Even more troubling, 12.63% of subprime loans were 90 or more days late, more than twice the rate a year ago, and likely one of the reasons the company has chosen to cut out subprime lending altogether.
The loan servicing arm took a pre-tax loss of $27 million compared with earnings of $123 million a year ago, thanks to a $690 million impairment charge for subprime and home equity loan residuals for anticipated credit losses.
Countrywide took a $57 charge related to the 12,000 announced layoffs, and expects an additional $70 to $90 hit in the fourth quarter related to the job cuts.
The lender also revealed that loan origination volume dipped from $118 billion to $96 billion as Countrywide eliminated a number of their higher-risk loan programs, and would likely fall further as the housing slump continues to weighs in.
In one bright spot of news, Countrywide Bank said consumer accounts rose by a net 9% in the quarter thanks to a flurry of deposits in September, despite a mad rush to withdraw from the bank in August.
And one executive noted that the lender has “sufficient cash on hand and liquidity” to service all debt through the end of 2008, assuming the lender can sell $10 billion in non-conforming loans.
Mozilo commented on the ongoing SEC probe regarding his stock sales over the last year, saying, “At no time did I make any trading decisions based on any material non-public information, and I fully complied with all company policies.”
“I am confident that this will demonstrate that I’ve complied with all protocols.”
The lender expects earnings per share in the fourth quarter to range between 25 cents and 75 cents.
Shares of Countrywide (CFC) were up a whopping $4.17, or 31.91% to $17.24 in late trading on Wall Street, though still far below summer levels of $40 a share.