Merrill raises specter of Countrywide bankruptcy

Want to know how bad it’s getting out there. This bad: Shares of Countrywide Financial fell yet again today—the fifth straight down day for the mortgage lender—following a report in which Merrill Lynch analyst Kenneth Bruce raised the prospect that Countrywide could be forced to file Chapter 11 bank “Effective insolvency” would result should creditors force Countrywide to sell assets at depressed prices or investors lose confidence in its ability to raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note today.

Shareholders shouldn’t “understate the importance of liquidity,” Bruce wrote, according to this story by Bloomberg reporter Elizabeth Hester. “If liquidations occur in a weak market, then it is possible for CFC to go bankrupt,” said Bruce, who downgraded Countrywide to “sell” from “buy.”

Merrill’s bombshell comes shortly after Countrywide issued a statement intended to comfort investors that it had access to credit lines that would more than meet its funding and liquidity needs.

Most interesting to me, though, it that just last week Countrywide CEO Angelo Mozilo reaped nearly $1.3 million by exercising 92,000 options. I know, I know, Countrywide has stressed in the past that these ongoing sales by Mozilo are planned under a trading plan set up with the SEC some time back (and which critics have questioned, as I pointed out at the end of this blog entry a few weeks ago). I’m sorry, but it doesn’t pass the smell test with me that Mozilo has been selling shares on the way. Call me old-fashioned, but I’m from the school that says the captain goes down with the ship, and even takes the bullet, like the captain of the Titanic. And he doesn’t profit while shareholders are losing money.

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