Countrywide Financial Corp.'s chairman and chief executive on Tuesday laid out a characteristically ambitious growth plan for its new commercial mortgage operation.
"The goal of this group is to be in the top 10 in CMBS underwriting in 2005 and top five in 2008," Angelo Mozilo said in a presentation at Lehman Brothers' financial services conference in New York.
Countrywide hopes to offset much of an expected decline in residential mortgage-backed securities underwriting with growth of its CMBS operation as well as more trading of Treasury securities, Mr. Mozilo said.
Thanks to robust demand for home loan securitizations and the increased attention Countrywide has given niche originations as refinancings dry up, it was the top underwriter of asset-backed securities in the first half, according to Investment Dealers Digest. It was No. 10 last year.
Nevertheless, the company acknowledges that a drop in overall mortgage production volume amid rising interest rates should crimp its capital markets activities, which contributed 11% of pretax profit in the first half. Such income climbed 15% from a year earlier, to $243 million.
The commercial real estate business, which was created in April when Countrywide hired the four founders of Coastal Capital Partners LLC of Sausalito, Calif., opened in July. It has 30 origination employees in New York, Chicago, San Francisco, and Los Angeles.
Hires have come from J.P. Morgan Chase & Co., Citigroup Inc., Bank of America Corp., General Motors Acceptance Corp., KeyCorp, Prudential Financial Inc., and Allstate Corp. Several commercial mortgage players have said they fear Countrywide is preparing to aggressively bid for loans.
Countrywide became a primary dealer of Treasuries in the first quarter, and its trading volume rose 24% in the second quarter.
Michael D. Cohen, an analyst at Susquehanna Financial Group LLLP of Bala Cynwyd, Pa., said he expects Countrywide's "securities trading volume to decline in line with mortgage origination volume." But its recent focus on adjustable-rate mortgage originations and the Treasury trading will "mitigate some of the decline."
Mr. Mozilo again sounded unenthusiastic about making purchases.
Countrywide was widely rumored to be the undisclosed party referred to in Cendant Corp.'s summer announcements about negotiations (since stalled) for its mortgage unit. But on Tuesday Mr. Mozilo reiterated his view that "acquisitions are very hard to pull off successfully."
"We're builders; that's our nature. We're just generally not buyers," he said. Especially in mortgage lending, "there's such a tremendous difference in the culture that I can't reconcile" making a deal.
