Countrywide Financial Corp. on Friday tried to calm customers of its bank after reports that some are withdrawing their money and depositing it with rival banks.
Countrywide, the largest mortgage lender in the United States, has been hit hard by turmoil in home loan markets that's spread across other credit markets in recent days. On Thursday, Countrywide borrowed $11.5 billion from a group of 40 banks because the company struggled to get financing in the secondary mortgage market or the commercial paper market. The company's debt may also be cut to junk status, rating agency Moody's warned.
That's sparked concern among customers of Countrywide Bank, the company's banking business. People jammed the phone lines and Web site of the bank on Thursday and crowded into branches to pull out their savings, the Los Angeles Times reported on Friday.
William Ashmore, president of Impac Mortgage Holdings Inc., another struggling mortgage firm, pulled $500,000 from a Countrywide Bank branch on Thursday to put it in an account at Bank of America Corp., the newspaper said.
"It's because of the fear of the bankruptcy," Ashmore told the L.A. Times. "I don't care if it's FDIC-insured. I just want out."
Countrywide tried to head off more withdrawals on Friday by highlighting that problems in the mortgage market don't impact the safety of deposits at its bank. Those deposits are insured by the government-run Federal Deposit Insurance Corp.
A recording left on the FDIC's call center on Friday immediately redirected people with questions about Countrywide Bank to a specific message. The FDIC said in the phone message that the bank has been an FDIC-insured institution since Aug. 30, 1990, and noted that deposits are insured to at least $100,000.
That covers lots of different types of deposits, including checking accounts, money-market deposits and certificates of deposit, the FDIC said in its message.
"It is important for Countrywide Bank's valued customers to know that the highly publicized issues related to the mortgage market do not impact the safety of FDIC-insured deposits at Countrywide Bank," said Tim Wennes, president of Countrywide Bank, in a
Countrywide Bank has more than $107 billion in assets, the company also announced.
"Earlier in the day, there were rumors of a run on the bank," said Erin Swanson, an equity analyst at Morningstar. Countrywide's statement "was an effort to calm fears and settle things down."
The health of Countrywide's bank is crucial to the company's efforts to weather the current credit storm. To reduce its reliance on credit markets further, the lender said Thursday that it will try to originate almost all mortgages through its bank by the end of September. At the moment, the company originates more than 70% of its home loans through the bank.
Banks oversee deposits for customers, so have a steadier source of money to lend than other finance companies that rely more on credit markets.
It's not clear whether Countrywide's statement on Friday will stop customers of its bank withdrawing money, especially those with more than $100,000 deposited.
"There will always be people who are concerned and want to put their money somewhere else," said Christopher Wolfe, an analyst at Fitch Ratings. Countrywide is "trying to let people know that their deposits are insured — and they are up to FDIC limits."
So if customers have a $200,000 deposit, they would be made good on $100,000 of that if anything goes wrong, Wolfe commented. If customers have $20,000 at Countrywide's bank, they would be totally covered, he added.
A bigger concern is if speculation of customer withdrawals from Countrywide's bank start to encourage others to pull out their money too, according to Wolfe. "If the headlines scream about this, it can create a self-fulfilling prophecy. These kinds of concerns can feed on themselves."
Countrywide shares rallied 13% to $21.43 on Friday. The stock is still down by roughly half so far in 2007.
