Countrywide Up on Private Equity Buy Out Possibilities

Today, Sallie Mae announced that it would be bought out by a group including a pair of leveraged buyout firms. http://blogs.wsj.com/deals/2007/04/16/sallie-mae-breaks-the-buyout-barrier-is-countrywide-next/

It raised speculation that Countrywide, CIT Group, and iStar Financial might be fair play in the wake of this mega news.

It continued by speculating on today's share price rise as possible noise regarding the possiblity of a buy out.

My take on this is another blatant attempt by either the hedge fund or the main stream media to pump up the share price of Countrywide Financial Corporation. After today, Countrywide is only down about 16% from its highs and does not carry significantly compelling buy out thesis that Sallie Mae does.

Additionally, if this was in the works, then Angelo Mozilo would not be actively liquidating his shares in the company, unless of course, he plans to retire after he sells all of his shares. This might be a remote possibility. But a leveraged buy out would require share holder approval and there will be some road block to this issue.

Right now, CFC has an open options probe that is ongoing, questionable off balance sheet accounting, and more questions than answers regarding its claim that it is immune to the recent subprime and ALT-A Option ARM fall out.

Just look at today's Wall Street Journal's article which show that Washington Mutual and Countrywide lead in questionable lending to second home buyers and subprime. Notice that subprime, high cost loans consist of 25% of the 2006 loans originated by Countrywide while second home buyer loan was 13%.

Not quite what Countrywide said their subprime or "risky" loan portfolio was.

Everytime any piece of information or news is unearthed, Countrywide is at the top of the list. Look at the chart, Countrywide is ranked right behind Washington Mutual as "risky" lending practices.

Yet, the market rewards Countrywide with a 7%+ rise today? Perhaps they WILL be bought out, I do not know the ins and outs of their daily misrepresentation, but, it does remain clear, that even if they are a buy out candidate, I do not think any buy out firm or LBO would touch this company until all questions have been satisfactorily answered.

If I had to be a bit "off the wall", I would say that today's rise was a manipulation to shake out the shorts before the "announcement" of materially damaging news that might be coming for CFC, possibly this week.

Maybe so, maybe not. I still think something fishy is going on. Tomorrow, the CPI and housing starts will be released. If CPI is "hot", that would be a damaging blow to today's irrational market rise. For some reason, the market sees dillusional fantasy of rate cut in the near future. FED has maintained that despite every consideration, inflation must be the priority. Last time I checked, the price of milk is expected to rise 9% in the fall, oil is above $60+ and is one severe storm or hurricane away from $70. Today's consumer spending data was "skewed" from an already low prior month number AND with doctoring of "Easter" data that happened to fall on March.

Yet the march continues towards the Apertoire.