The Five Dumbest Things on Wall Street This Week

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The Five Dumbest Things on Wall Street This Week

Colin Barr

1. Motivated Seller

The roof is caving in at Countrywide (CFC Quote).

Shares in the Calabasas, Calif., lender sank 10% Tuesday after an earnings debacle. Profit plunged by a third in the second quarter, while defaults and delinquencies rose across the board.

Countrywide's outlook is even gloomier. The company slashed its 2007 guidance and warned of job cuts in coming months. CEO Angelo Mozilo said a turnaround is unlikely until at least 2009.

"We are experiencing home price depreciation almost like never before," he said on a marathon Tuesday afternoon conference call, "with the exception of the Great Depression."

There is much to be depressed about at Countrywide. Investors have been dumping the stock ever since the mortgage market started creaking this past winter.

Among the most enthusiastic sellers has been the 68-year-old Mozilo. He has sold 432,000 shares underlying options in the last month alone, according to Yahoo! Finance. Between July 11 and July 20, his pre-arranged stock sale plan allowed him to sell five times in seven days for a profit of $9.5 million.

All told, Mozilo has sold 3.8 million shares this year for a profit of more than $90 million. Meanwhile Countrywide has seen some $8 billion wiped off its market value.

"It is a personal situation," Mozilo said on Tuesday's call, "that I'm selling into a market no matter where the price of the stock is."

True to his word, Mozilo was selling just as much at $35 as he was at $40. And judging by his comments earlier this year, he's going to keep right on selling.

"I have created $25 billion in value for the shareholders," he told National Mortgage News back on March 12. "I gave them 98% of the value and took 2%. And [the shareholders] didn't have to do the work. I did it for them."

All this selling is doing a job on shareholders, all right.

Dumb-o-Meter score: 95. Poor Mozilo's option take last year was just $72 million.

2. Salt in Biovail's Wounds

Biovail (BVF Quote) investors are feeling blue.

Shares of the Canadian generic drugmaker plunged 20% in a day after U.S. regulators rejected its latest twist on a popular antidepressant.

The Food and Drug Administration sent Biovail a nonapproval letter covering BVF-033, a drug candidate based on bupropion -- the active ingredient in Glaxo's (GSK Quote) Wellbutrin.

Biovail had high hopes for the new drug. In a May earnings release, Biovail said that "with an FDA action date for BVF-033 in July and a maturing development pipeline, Biovail is entering a new-product cycle that should drive long-term growth for the company."

But that cycle is now on hold. The FDA told Biovail it had questions about "the design of the pharmacokinetic studies" used in the drug application.

Questions about Biovail and Wellbutrin are nothing new. In May, the staff of the Securities and Exchange Commission told Biovail to expect a civil suit over issues including the company's handling of a fall 2003 earnings warning.

Biovail blamed the shortfall on a truck crash, claiming the accident was responsible for the loss of $10 million to $20 million in Wellbutrin XL sales. But as TheStreet.com's Adam Feuerstein reported, the truck was mostly empty -- with the real value of the cargo likely more in the $2 million to $4 million range. Biovail says it is cooperating with the SEC.

Biovail is also cooperating with the FDA to iron out issues tied to BVF-033. Back in May, the company said in a regulatory filing that it believes the drug "may provide unique safety benefits," due to its "new salt formulation."

It pays to take everything Biovail says with a grain of salt.

Dumb-o-Meter score: 88. The FDA setback comes just a month after Canadian regulators barred Biovail founder Eugene Melnyk from serving as a director.

3. Expedient Expedia

Expedia's (EXPE Quote) huge buyback plan didn't travel well.

The Bellevue, Wash., online travel agency opened the week by dropping its $3.5 billion leveraged stock repurchase. Monday's move came just a month after the company unveiled the self-tender plan to great fanfare.

"With this action," Chairman Barry Diller said June 19, "we couldn't be clearer that the management and the board of this company are confident in the value of Expedia and in its long term future."

Bond investors appear less confident in Expedia's future, however. They demanded interest rates that would have made it prohibitively expensive for Expedia to borrow enough money to buy back some 40% of its stock, as the plan envisioned.

So this week the company rolled out a smaller buyback -- covering 25 million shares, rather than 116 million as originally planned. The decision will save Expedia millions of dollars in financing costs.

But the flip-flop also saddled shareholders with a $1 billion plunge in market value, as Expedia shares sank 12% over two days.

"While we remain confident in Expedia's long-term prospects and will continue to be net buyers of our shares, the terms available to us in the current debt market environment were simply unacceptable," Diller explained. But, he was quick to add, "Our confidence in Expedia's future is well held."

It's certainly not widely held.

Dumb-o-Meter score: 85. The leveraged buyback would have boosted Diller's stake in the company above 50%.

4. Space Junk

XM Satellite (XMSR Quote) jettisoned some executive baggage.

The Washington, D.C., pay radio company said Tuesday that longtime CEO Hugh Panero will step aside next month. Operating chief Nate Davis will take over as interim CEO.

The shift comes as XM and rival Sirius (SIRI Quote) struggle to sell regulators on their merger of equals. The companies say they expect the deal to close this year, though observers question whether federal agencies will give it the go-ahead.

XM didn't explain why Panero, who had been scheduled to stay on as CEO through closing, is leaving now. Instead board members took a stroll down memory lane.

"Hugh brought to XM the rare combination of vision, operating experience and programming expertise," said longtime director Eddy Hartenstein.

"Hugh took satellite radio from a concept," XM Chairman Gary Parsons added, "and turned it into the popular, mass market, consumer entertainment product it is today."

One thing Panero didn't manage to do was turn satellite radio into a profitable business. XM served up the latest evidence of that Thursday morning, when it posted a second-quarter loss of $176 million despite a 22% year-over-year revenue gain.

But bad news is nothing new for Panero, who was snubbed back in February when XM and Sirius announced their combined management team. The companies said the merged entity would be led by Sirius CEO Mel Karmazin, with XM's Parsons staying on as chairman.

Panero, the companies said back in February, "will continue in his current role until the anticipated close of the merger."

Or, as it turns out, until he's shown the door.

Dumb-o-Meter score: 82. "Nate has been an outstanding addition to the senior management team," Panero said Thursday, "and I am confident he will carry XM to the next level of success."

5. Shrewd Negotiators

The guys at WCI Communities (WCI Quote) know how to drive a hard bargain.

Shares in the Bonita Springs, Fla., homebuilder plunged 21% Thursday to $9 a share after the company said it had failed to find a buyer. WCI admitted that "deteriorating conditions and uncertainty in the homebuilding and debt markets have made the sale process more challenging."

The sale process could have been easy, of course. Carl Icahn offered in March to buy WCI for $22 a share, reasoning that the company's value has been obscured by mismanagement.

"We believe that the board and CEO of WCI have not enabled the company to maximize the potential of its unique set of assets," Icahn said March 13.

As if to prove the point, WCI chief Jerry L. Starkey and Chairman Don E. Ackerman decided not to accept Icahn's sweet bailout plan. Instead they fired off a barrage of letters questioning his motives and ridiculing his offer.

A May 11 letter advised shareholders that in contrast to Icahn, the WCI board "has both experience and a plan to maximize value for all shareholders."

The WCI board remains in place, but value hasn't been maximized. Instead, WCI shares have plunged 55%. The fact that the stock has sold off certainly undermines Starkey and Ackerman's claim that the Icahn offer was "inadequate."

Inadequate's too kind a word for these guys.

Dumb-o-Meter score: 79. "WCI's current directors are highly qualified with substantial experience in the home-building industry, as business leaders, and as directors of public and private companies and other organizations," the May 11 letter claimed.