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Cashing In at Countrywide


For all the buzz over Countrywide’s poor earnings report on Tuesday and CEO Angelo Mozilo’s bearish comments about the housing market, I think we’d be remiss if we didn’t discuss the elephant in the room: The fact that Mozilo was an aggressive seller of Countrywide’s stock during the past year: By the count of New York Post writer Paul Tharp, Mozilo has sold $118 million in options since last December.

That’s notable because during the same period, Countrywide was buying back its own stock (which critics argue could have had the effect of providing a cushion under the stock during the period that Mozilo was selling. If you want to see a list of all of Mozilo’s stock sales, click here at BusinessWeek’s new Company Insight Center, which (shameless plug alert) provides a wealth of information about public companies and the executives who run them.Yahoo! FinanceQuote for CFC/I don’t often put much stock in the so-called “earnings calls” that companies hold with Wall Street analysts immediately after each quarterly earnings report, given that the majority of analysts are terrified of asking tough questions lest they offend the CEO and lose their access. But one investor, Ronald Redfield of Redfield, Blonsky & Co., a small New Jersey CPA and investment firm that appears to be short Countrywide’s stock (see commentary here that Redfield posted on his web site a week before Countrywide reported earnings), had the gumption to question Mozilo about the sales. It was an interesting exchange. Mozilo briefly defended the sales, but you could tell the question was eating at him because at the end of the earnings call, he brought it up again. Here’s the exchange:

Ronald Redfield - Redfield, Blonsky & Co.: Were there any buybacks during the quarter? Do you find, Angelo, with all respect, you selling a material amount of shares into buybacks? You previously mentioned you own 10 million shares. How many shares do you currently own, not including options? Angelo Mozilo: I don't know the answer to that question. I own -- including options, I think around -- I think it is around 11, 12 million, something like that. The sales of the stock had nothing to do with buybacks because that 10b5-1 agreement was made well over a year ago.

Ronald Redfield - Redfield, Blonsky & Co.: No, the legality is fine, but one can think that perhaps the price is being held up the buybacks creating a demand.

Angelo Mozilo: Yes, well, if you think like that it's -- I don't think like that. The buybacks were done because we thought it was in the best interest of shareholders. I have -- as somebody pointed out, I'm 68 years old, I own a lot of shares, and I have 10b5-1 that is in process right now. That is selling into this market when the buybacks are not holding it up.

So it is an independent issue that is not relevant to buybacks or not buybacks. It is a personal situation that I'm selling into a market no matter where the price of the stock is.

The call continues as other analysts ask questions, and at the conclusion, Mozilo says this:

Angelo Mozilo: Okay, some final comments. One to the individual who asked about my sale of stock. The decision to buy back stock is a collective decision, really emanates from the financial operations of the Company as to what is the best return for the investment of the shareholders, invested capital for the shareholders. So it is totally unrelated to any of my issues relative to the sale of stock.

Secondly, as I said, I don't know the exact amount of shares that I have. But the shares that I have, actual stock I have, I have retained for 39 and a half years. Not sold a share of the initial stock that I got when Dave and I started this Company that I got, that I purchased.

The only thing that is being sold under the 10b5-1 are options with expiration dates.

END OF CALL

If you'd like to read the full transcript of Countrywide's earnings call, click here.

One final note: Mozilo notes that he wasn't randomly selling, but was selling under a pre-arrange program under SEC Rule 10b5-1. To better understand Rule 10b5-1, and the controversies surrounding its use, I would point you to this excellent article from last November by my BW colleague Jane Sasseen, titled "Not As Random As It Looks."


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