Maybe you saw that sharp drop in Countrywide Financial shares around midday today. And just maybe you had a What the....? moment like many of the traders here at SchaeffersResearch.com. Well the story behind the more than 9% drop is CFC shares is a rumor that the company might file for bankruptcy. However, a company spokesman vehemently denied the speculator, stating that rumors that the firm might file for bankruptcy are absolutely false. A company representative made the comment to the Wall Street Journal after a securities analyst suggested that problems at Freddie Mac and Fannie Mae could cut off liquidity for Countrywide. CFC shares were downgraded in the analyst note.
Countrywide's survival strategy has depended on access to the secondary markets through GSE purchase and re-securitization. That strategy is less viable in an atmosphere where the GSEs themselves are capital constrained and may need to shrink, Fox-Pitt, Kelton analyst Howard Shapiro wrote on Tuesday.
The shares quickly dropped to an intraday low of $7.10 per share, before rebounding to just below $10. Despite the overwhelming investor pessimism toward the shares, CFC must overcome more than just a few investors, it must overcome a market obsessed with a credit crunch and a subprime fiasco. With the Fed signaling that it may not intervene with a rate cut anytime soon, this could be a long, uphill battle for CFC to recoup any of its heavy losses.