Origination/Lending
Countrywide Tanks on Bankruptcy Rumor
By PAUL JACKSON
January 8, 2008 10:50 AM CST
(Updated to reflect response from Countrywide)
If markets needed any proof of just how jittery investors are to start the new year, one need look no further than a wild swing of events Tuesday morning at Calabasas-based Countrywide Financial Corporation.
Shares of the nation’s largest lender fell sharply as unconfirmed rumors of a potential bankruptcy spread throughout the morning.
A report at Bloomberg found numerous traders citing rumors of a pending bankruptcy, while the Wall Street Journal’s MarketBeat Blog also reported similar sentiment based on activity in credit default swaps and options contracts.
Dow Jones later reported that the rumors — which led Countrywide shares to their worst drop since October 1987 — were without merit, citing a company spokesperson. Reuters has coverage of the denial from Countrywide, as well.
The stock had fallen $1.67 to $5.97 in early trading, but had rebounded to $6.73 after news of Countrywide’s rebuttal hit the wires.
I have a theory — probably inane — on how this all got started. Is it possible that this morning’s New York Times story on Countrywide’s missteps in a consumer bankruptcy case was twisted around? I can easily see someone overhearing a morning conversation containing the words “Countrywide” and “bankruptcy,” as a result.
It’s just a theory, but you never know — it could have happened.
Disclosure: As of when this post was published, the author owned various put option contracts on CFC.
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