Has the run started at Countrywide?

I’ve never witnessed one myself, but the good people of California certainly have (S&L crisis of ’88) and the image of dozens of people lined up outside branches of Countrywide Bank (CFC:NYSE) will not have helped calm anyone yesterday in that part of the continent.

Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

“It’s because of the fear of the bankruptcy,” said Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

“It’s got my wife totally freaked out,” he said. “I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.”

One of the luxuries at Countrywide was their own deposit base (see post “Where’s the Bank of Canada on Coventree stumble?“, August 14-07), which made the problems of mortgage funding less acute there than at the NewStar’s and New Century’s of the U.S. non-conforming mortgage market.

Countrywide recently was funding about $40 billion a month in mortgages. Of those, about half qualified to be sold to Freddie Mac or Fannie Mae, and half were “nonconforming” loans the agencies don’t buy, including sub-prime mortgages to higher-risk borrowers as well as jumbo loans, which account for 43 percent of all mortgages issued in Southern California.

Company executives declined to discuss how the heavy withdrawals at Countrywide Bank branches Thursday might interfere with that strategy.

While it was odd that Countrywide saw the recent mayhem as a crisis to take advantage of (see “A smile a Country-wide“, August 3-07), and build their already impressive marketshare with the HomeBanc acquisition on August 7th, you would have thought they’d have been highly sensitive to the amount of capital that it would take to fund the growth of their loan book. Let’s see how the news of guys like Rogie Vachon (former hockey star) pulling out their dough makes the rest of the deposit base feel over the weekend.

And then there’s the broader market to consider. Who wants to be buying stocks if a financial institution with US$107 billion in assets (larger than National Bank of Canada {NA:TSX}, for example) starts to look wobbley?

With US$60 billion of deposits as at the last quarter (as compared to $40 billion of personal and business deposits at National), it’ll take more than a few dozen customers to put a dent in that figure. But no one ever wants to explain to their spouse why they had $500k on deposit if over $60k was insured by the FDIC. This from the WSJ yesterday:

Some analysts say there is a widening polarization between bulls, who think the sheer market share of companies like Countrywide will help them weather the current storm, and bears, who think liquidity — or access to cash funding — has simply dried up, potentially throwing those companies into insolvency.

The 16 Street researchers tracked by market-data provider Thomson Financial who cover Countrywide are divided in half, with six urging investors to buy, five telling them to sell, and another five who are neutral.

“I have got beaten up on some of my calls too, because some of my companies went belly up, and I missed it,” said Paul J. Miller Jr., an analyst with Friedman, Billings, Ramsey Group who placed a “sell” on Countrywide in mid-July. “When liquidity gets taken away from you, it happens behind the scenes and it’s very hard to predict,” he says.

MRM