Thursday, August 23, 2007

Oh please dilute me and let me go, for I don't love you anymore

Countrywide Financial's investors are no doubt singing this ballad of loss today as they digest the news that Bank of America has made a $2 billion injection into CFC that has an $18 convert price.

In ordinary circumstances these terms would be viewed as terrible. Faced with the prospect of seeing their investment destroyed, however, it's great news for CFC's stockholders. Make believe after-market and overseas trading before the NYSE open had CFC trading above $26 as compared to yesterday's close of $21.82. In the real liquid trading now CFC is up less than a buck, around $22.80. While almost assured that a liquidity crisis won't take down the company, with an $18 a share partner that has a hypothetical 16% ownership of the company, many investors are likely happy to reduce their positions and move on for now, and cede ownership of CFC to deep value investors with patience.

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