Recent Blog Posts
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The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
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Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
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Introducing the New Ford Squeeze
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Non-Economic Questions of the Day
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The Stress Test Blind Alley
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Happy Hour
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Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
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Whither Countrywide?
While I'm on the subject of bank valuations, it's worth revisiting Countrywide, which is now languishing at about $16.50 per share and looking for a second white knight to come in and provide much-needed operating capital. At the beginning of August, I noted that investor Dave Neubert thought that a price-to-book ratio of about 1 looked like a great buying opportunity, so he added to his position at $25.96 per share. That price-to-book ratio is now 0.66. Oops.
The question of how far Countrywide will fall is an interesting one, because it helps put a real market-clearing price on an enormous portfolio of subprime loans. Obviously the market no longer has much if any faith in Countrywide's own estimation of its book value – the value of all those loans it holds. But there are clearly also concerns about Countrywide's solvency: it has $124 billion in debt, and a market cap of less than $10 billion. If this crunch continues, that last sliver of equity could be wiped out pretty easily. No financial institution can survive if its lenders don't have confidence in it, and confidence in Countrywide's survival seems to be evaporating rapidly.
