Countrywide Financial Trading Eyed
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
It could be another example of hanky-panky in the stock market or perhaps cheating to hit the bull’s-eye on a rumored takeover target.
Apparently, the Securities and Exchange Commission is thinking along the same lines, having just kicked off an investigation, I’ve learned, into trading in the shares of Countrywide Financial, one of the nation’s largest independent mortgage lending firms.
The period in question centers on late 2006 trading, prior to a disclosure last month in the Financial Times that Countrywide and Bank of America have held discussions about a possible alliance.
The SEC, as usual, was as loquacious as a sphinx when asked about the probe, saying “we don’t comment on trading investigations.” A regulatory contact confirmed the investigation, but he wouldn’t discuss it.
The report in the Financial Times on January 27 immediately drove Countrywide’s shares higher, pushing them to an all-time high of $45.26 amid Wall Street speculation that a buyout of the company could be in the works, possibly for a price per share in the low-to-mid $50s. That would represent a purchase price of about $33 billion.
Interestingly, though such speculation was quashed last week by Bank of America CE0 Ken Lewis at a financial services conference, the stock continues to trade around its peak, currently selling at $44.74, sharply above its 52-week low of $32.10.
Given the vigor of Countrywide’s stock at a time when many housing-related shares have fallen sharply because of slowing real estate sales, clearly a fair number of investors believe something significant is going on.
The specific nature of the trading probe could not immediately be determined, but the belief is that it likely centers on the prospects of the reported alliance with Bank of America, either in the form of a merger or a buyout.
Countrywide declined comment on both the reported talks with Bank of America and the SEC trading probe. Bank of America, the country’s second-largest banking institution, didn’t respond to calls seeking comment.
Aside from Countrywide, the SEC, I’m told, has kicked off five other trading investigations. They involve ViewPoint Financial Group, Cemex, S.A.B., Eastern Insurance Holdings, Chordiant Software, and ICOS Corp.
The commission recently fired off letters to the brokerage community in which it requested the identity of all clients, both here and abroad, who have traded in the stocks and options of all six companies in specific time periods.
NOT OUT OF ENERGY
The torrid energy sector has been a big winner for many investors, but alas, a reader, Don Edelsman, is not among them. And of all people, he blames me for his shortfall.
In an e-mail, he wrote: “After reading a favorable article you did on energy stocks, I bought one of the companies recommended by your incompetent analyst, Chesapeake Energy, at $34.80. You made a poor choice in selecting analysts and you ought to think twice about whom you quote. The stock has been a dog and presently trades at $29.29. I am thinking of dumping it, but I’m not sure.”
For starters, Don, that “incompetent analyst” you refer to is Alan Gaines, one of the brainiest energy minds I know, and you should only do as well in the market as he does. A onetime institutional analyst who personally has a portfolio of energy stocks worth more than $100 million, Mr. Gaines was also an adviser to Carl Icahn in a number of his hostile energy takeovers. By the way, he still retains a fairsized stake in Chesapeake, which he also views as a potential takeover candidate.
Mr. Gaines aside, Standard & Poor’s also regards Chesapeake, the country’s third-largest natural gas producer with a large proven reserve base of 8.3 trillion cubic feet, as a stock to own. They see it climbing to $38, about a 27% gain in the next 12 months, and they expect Chesapeake, the most active driller in the country, to increase internal production 16% this year and 12% in 2008, compared with a 24% hike in 2006. Earnings are pegged at $3.36 a share in 2007, and $3.89 in 2008. Last year’s profit is estimated at $3.96 share.
