Banking stocks in a tight credit market
“Countrywide Financial Corp., the biggest U.S. mortgage lender, fell 13 percent, the most since the 1987 stock-market crash, after Merrill Lynch & Co. raised the possibility of bankruptcy. “Effective insolvency” would result if creditors force Countrywide to sell assets at depressed prices or investors lose confidence in its ability to raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note today.”
Countrywide Falls; Merrill Cites Bankruptcy Prospect (Update4)
It’s a little scary when one of the largest U.S. residential lenders loses half their value in less than a year. What makes it worse for Countrywide is their cost of business is now increasing due to the higher rates they pay for funding. Will this continue spreading until there aren’t any more residential loans? No. But, I do believe this credit market is going to get a lot tighter, leading to a tipping point in real estate markets that haven’t yet headed south. No loans, or highly expensive loans lead to fewer real estate sales which leads to price reductions as the only way possible to move property.
Interesting times indeed.