The Enronization of Countrywide?

Last October, when Countrywide Financial posted the first loss in its history, we expressed skepticism over the company’s claim that it would return to profitability in the fourth quarter. That quarter has come and gone and the company today announced a net loss of $421.9 million. The loss for the previous quarter was $1.2 billion. An impairment charge of $831 million related to mortgage and credit issues was also recorded for the fourth quarter.

We noted that when the company made its claim about better times ahead (to which the market responded affirmatively) CEO Angelo Mozilo was busy selling a bundle of his own shares.

It will be recalled that when the fortunes of Enron were deteriorating, CEO Ken Lay was boasting about its rosy future while selling off his stock in the company. That’s not the only similarity with between Countrywide and Enron, however.

Earlier this week, Mr. Mozilo, who has been one of the highest paid CEOs in America over the past several years, said he would be giving up more than $37 million in fees and severance when the company’s deal with Bank of America is completed. Enron’s Lay gained considerable praise by agreeing to give up $60 million in bonuses just before that company imploded. The move was greeted at the time as a model of corporate leadership in many circles and made Mr. Lay something of a media darling -for a few weeks. As it turned out, Enron didn’t have the money to pay Mr. Lay, and soon it had no money to pay its employees. It was a “success” story built upon a cloud of fraud and deception where a CEO and top executives tried to push up the value of the company’s shares, and their bonuses, with false claims and faked books.

Countrywide’s claims have already been shown to be suspect with the most recent loss. We wonder how many other surprises are in store for investors and stakeholders as this story unfolds.

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