Despite Countrywide Financial Corp.'s fourth-quarter net loss, which included a rise in delinquencies to one out of every three subprime loans, Bank of America Corp. said it is still intent on buying the bruised lender.
After Countrywide reported the results Tuesday morning, Kenneth Lewis, B of A's chairman, president, and chief executive, said without prompting at a New York investor conference that the items driving the loss "were consistent with our due diligence and transaction price."
Right now "everything is a go" to complete the $4 billion deal, which was announced Jan. 11 and scheduled to close in the third quarter, Mr. Lewis said.
"What is much more important to us is the dramatic improvement in the underlying fundamentals of the mortgage business," the CEO said.
He also said the housing market is likely to work off excess inventories by midyear.
Though Countrywide's fourth-quarter loan production dropped by half from a year earlier, to $61 billion, Mr. Lewis said both it and B of A have had a significant increase in volume this quarter driven by lower interest rates.
"You've almost got a refinance boom as we speak," he said.
Countrywide's $924 million fourth-quarter provision for credit losses was nearly 13 times the figure from a year earlier but fell 1.4% from the third-quarter provision.
"It looks like it's not going to get much worse, and some things are actually better," said Bart Narter, a senior analyst at the Boston consulting firm Celent LLC.
Still, delinquency rates jumped dramatically. The rate on subprime loans rose 4.5 percentage points from the third quarter, to 33.6%, and the rate for prime loans rose 1.35 percentage points, to 5.76%.
Countrywide pared expenses as loan volume dropped sharply, Mr. Narter said.
"They're not generating as many loans as they used to, so they adjusted their cost structure accordingly."
The Calabasas, Calif., lender's loan production unit incurred a $448 million loss for the quarter, versus a $421 million profit a year earlier.
However, for the third quarter the unit had incurred a $1.3 billion loss.
Countrywide's results included $1.62 billion of writedowns on its mortgage servicing rights, along with $1.9 billion of hedging gains.
The company took $394 million of writedowns on $7 billion of loans it could not sell and had to hold in its portfolio. It also took $87 million of restructuring charges.
Net chargeoffs in its banking operations rose by slightly more than half from the third quarter and over thirteenfold from a year earlier, to $192 million, but the unit's credit loss provisions fell 12.2% from the third quarter, to $688 million.
Countrywide said its allowance for credit losses in its banking operations rose by nearly half during the quarter, to $1.6 billion at yearend. The reserve is supplemented with credit enhancements covering 68% of its pay option adjustable-rate mortgage portfolio and 11% of its home equity portfolio.
All told, Countrywide lost $421.9 million, or 79 cents a share, in the fourth quarter, versus net income of $621.6 million, or $1.01 a share, a year earlier.
The net loss narrowed, however, from $1.2 billion in the third quarter.
Fourth-quarter revenue fell 58% to $1.16 billion.
For the full year, Countrywide posted a loss of $704 million, or $2.03 a share — its first annual loss in more than 30 years.
