Another day, more news on Countrywide. Fitch Ratings said this morning that it is revising its rating on Countrywide Financial Corp., reflecting the now-approved $2 billion investment in the lender by Bank of America. Fitch said it is moving to rating watch "evolving" from an earlier "negative" watch. From the press statement:
The Rating Watch Evolving reflects the $2 billion strategic equity investment from Bank of America (BAC) in non-voting convertible preferred stock of CFC ... Fitch's downgrade of CFC and subsidiary ratings on Aug. 16, 2007 was prompted by the company's announcement that it had drawn down its $11.5 billion unsecured bank facility, a clear sign that liquidity pressure was mounting. While the decision in of itself raises concerns, Fitch believes the added liquidity provides relief in the short term. Fitch also believes that CFC's current liquidity issues were not caused by a fundamental breakdown of the company's financing plan or strategy, but more so with investor's extreme risk aversion that has triggered unprecedented disruption in the capital markets. Prior to now, CFC prospered from its large scale and dominant position in the U.S. mortgage market. CFC still benefits, however, from its $1.42 trillion mortgage servicing portfolio and earnings generated by the insurance segments. Even if the environment normalizes in relative short order, Fitch believes that residual effects caused by the company's temporary liquidity stress will have a significant impact on origination volume and operating performance.