To prevent a run on deposits, Countrywide Bank Head reassures the customers that their accounts were unaffected the troubles of its parent company, Countrywide Financial Corp, on Friday. The Countrywide Bank President Tim Wennes spoke on an interview where he reiterated that it is “important” that their customers know that the bank is still “well capitalized”. It is still one of the largest banks in the US and, the customers’ FIDC-insured deposits remain, safe, as ever.
This came in wake of the Apprehensive depositors who came in droves clutching withdrawal slips in the Countrywide Office for the second straight day. In Beverly Hills branch the company had to place extra chairs in a waiting area and asked customers to write their names on a sign-in sheet. The names had filled 2 and half pages before noon.
Tim Wennes quickly added that the unusually high outflow was made up by a continuing flow of new funds into the bank. The institution, well known for holding down costs by having a few employees working out of selected Countrywide mortgage offices, famously offers high interest rates on certificates of deposit and holds billions of dollars collected from Countrywide's mortgage customers to pay taxes and insurance on their homes.
"We've not seen a significant change in our deposit levels," Wennes said. "We've opened a lot of new accounts,” he is quick to add.
The Head of the Bank’s attempt to reassure the customers come in the wake of a week’s worth of bad news for Calabasas-based Countrywide Financial, the nation's largest mortgage lender, which had made known that foreclosures and delinquencies had soared and that Wall Street would no longer buy its loans or provide it with funds to lend. The ratings had plummeted until the bonds had been barely junk. At midweek, an analyst had suggested that the company might have to file for bankruptcy.
However, the situation has since stabilized since on Friday a Bank of America Corp. analyst upgraded Countrywide Financial shares to "neutral" from "sell." and the stock rose $2.48, or 13%, to $21.43, reversing a steep decline. An $11.5-billion line of credit from banks, which Countrywide Financial tapped Thursday to keep funding its operations, "should provide it with the time to address liquidity/capital concerns," according to the analyst Robert Lacoursiere. He believes that the “possibility of a liquidity-induced distressed sale” is very unlikely.
A recovery like this does not immediately mean that the road ahead will be easy for Countrywide. Although a Federal Reserve rate cut Friday was a welcomed event for the lender, investors remained apathetic about purchasing any mortgage-backed securities except those issued by government-sponsored loan buyers Freddie Mac and Fannie Mae, analysts said.
Fannie Mae and Freddie Mac had however stopped buying many of the sub-prime, adjustable-rate and jumbo loans that helped fuel the housing boom this decade and that Countrywide made along with traditional mortgages ever since being barred from purchasing them.
That is just one of the many examples of the advantages enjoyed by large banks that are also major mortgage lenders, i.e. Wells Fargo & Co. and Washington Mutual Inc., which have capital required to hold on to such a large numbers of such loans.
While their competitors tighten their belts economically, it is a great opportunity for the company to expand on their assets, the Washington Mutual Chief Executive Kerry Killinger points out in an interview on Friday. Washington Mutual, who had in response to the end of the housing boom and competition in the mortgage business home lending had sold $22 billion in loans and securities over the last year, focusing on growing its credit card and retail banking operations. However since their other mortgage competitors have been struggle, loans can be at solidly profitable interest rates, Killinger said – as long as the Wall Street won’t buy them from the lenders. He also added that the Washington Mutual had long since planned to add $15 billion to the existing $25 billion in loans to its books over the next couple of months.
Similarly, Countrywide plans to accelerate rapid growth at its bank, in hopes that it would be able to invest in more of the loans that have been banned for Freddie Mac and Fannie Mae to buy. However the more immediate goal at hand for them was addressing the concerns of depositors. To reassure them that that the parent company wasn’t bleeding away bank assets (which included their deposits) and that as much as $100,000 per account were safely insured by the Federal Deposit Insurance Corp.
Wennes admits that there had been concerns raised. "We definitely have seen an increase in the volume of customers' questions about FDIC insurance," he said. Woody McBreairty, a depositor at the Beverly Hills’ office said he heard about Countrywide’s issues for the first time Friday morning. It had shocked the 60 years old, who knew that he had to recover his money. The retiree plans to close his CD account, which holds more than a $100,000". "Who wants to leave their money in a bank where they might lose it?" McBreairty asked. Who, indeed.