Updated from 9:45 a.m.
( CFC) tumbled 7% Tuesday after the lender cut its full-year profit target, saying defaults and delinquencies were rising across all mortgage categories.
Wall Street took the news badly, because Countrywide's comments suggest credit quality is deteriorating everywhere amid a U.S. housing slowdown, not just in the hard-hit subprime area. Shares in banks, brokerages and homebuilders fell across the board, with lenders such as
( NFI) and
( FMT) off 6% each. Also hard hit were
, each of which dropped more than 3%.
The setback is only the latest for the financial stocks, which have been hit hard this summer as the market for financing leveraged buyouts begins to slow and losses start to emerge on loans made to homebuyers with poor credit histories.
( BSC) stunned Wall Street last week by saying two hedge funds that had made bets on subprime securities were essentially worthless.
Countrywide, the nation's largest independent lender, made $485 million, or 81 cents a share, compared with $722 million, or $1.15 a share, in the year-earlier period. Revenue dropped 15% to $2.5 billion.
Analysts had expected the company to earn 95 cents a share on $2.9 billion of revenue.
"Countrywide's results for the second quarter of 2007 reflected strength in our core loan production business, but were adversely impacted by continued weakness in the housing market," said CEO Angelo R. Mozilo. "During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result. Due to these adverse conditions, the company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home equity loans."
The bank's poor performance could put pressure on Mozilo, who has sold Countrywide shares no fewer than six times this month under preplanned sale plans, according to Yahoo! Finance.
Countrywide had a $417 million impairment charge related to the company's investments in "credit-sensitive related instruments."
That included $388 million, or 40 cents a share, of impairment on residual securities collateralized by prime home equity loans. The charge is attributable to "accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans," the lender said.
Countrywide also had a $293 million provision for added loan losses on its held-for-investment loan portfolio. The company said $181 million of the provision was for prime home equity loans in its banking business.
On the bright side, the Calabasas, Calif.-based company said total loan fundings in the second quarter rose 11% to $133 billion.
Still, the company slashed its full-year earnings target to a range of $2.70 to $3.30 a share from the previous $3.50 to $4.40.
"Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist," Mozilo added. "Nonetheless, management remains optimistic about the long-term future growth prospects and profitability of the company as industry consolidation continues."
Shares were down $2.31 to $31.75.