Jonathan Weil talks about how Countrywide and Washington Mutual changed classification for billions of dollars. Countrywide transferred $12.32 billion from "held for sale" to "held for investment". Held for investment would mean they have to carry the assets on balance sheet at market value. But by moving to held for investment, they don't have to take the hit right now.
I guess this is how they plan to be profitable in the fourth quarter. Just stuff all the losses in the closet.
That's because mortgages classified as held for sale must be carried on the balance sheet at cost or market value, whichever is lower, with any declines hitting quarterly earnings. Mortgages held for investment, by contrast, need be written down only if they have suffered an ``impairment'' that is ``other than temporary,'' which can mean different things to different people.
A loan's real-life value, of course, won't stop falling just because the accounting treatment changes. Yet by reclassifying loans as investments, banks can postpone big losses, hoping the values rebound later. The problem is they might not, in which case investors could get blindsided.
Countrywide, which reported a $1.2 billion net loss for the third quarter, transferred $12.32 billion of prime mortgages to held-for-investment, after first marking them down by $418 million. The loans all were of the ``non-conforming'' variety that don't
qualify for sale to Fannie Mae and Freddie Mac -- which in this market means there are few, if any, buyers. The biggest U.S. mortgage lender finished the quarter with $30.86 billion of loans held for sale and $83.56 billion in the investment category.
http://www.bloomberg.com/apps/news?pid=20601039&sid=a5Ag3FekeR.s&refer=home
In an another article, WSJ talks about Countrywide extending employees' stock options by one to two years. The extensions are on $32-$39 range options expiring as early as April 2009. I guess they are not confident that the stock will hit that level.
Of course then you have Bill Miller who thinks the stock is worth in the $40 range. Hey Bill, please tell Countrywide to not extend this option as the stock should be trading at fair value by 2009.
Angelo and company are the biggest scammers. They scammed all the analysts to believe that they will be profitable in the fourth quarter.
http://online.wsj.com/article/SB119430931303883273.html?mod=todays_us_page_one
http://www.businessweek.com/investing/insights/blog/archives/2007/11/bill_miller_has.html
Note: I am shorting Countrywide using Jan Options.
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