Countrywide: Think Enron without the Accounting Fraud?

Well, it happened. No surprise. Merill Lynch, which assured markets last week that Countrywide was fine and could access all of the credit that it needs to keep its mortgage business alive, actually did an about-face. Analyst Kenneth Bruce, just two days after he published a note rating Countrywide stock \"buy\", said that credit markets had deteriorated so rapidly that demands for more collateral or repayments from lenders, along with forced asset sales, could weaken Countrywide, causing a liquidity event. He furthered, if creditors were to cut off funding to Countrywide and force it to sell assets in a weak market, \"then it is possible for CFC to go bankrupt.\"

I am not sure what happened in the credit markets in last two days that wasn't present before and would have been measureable or caused Bruce to change his mind so quickly. Did this Merrill analyst really determine that liquidity injections haven't calmed the market today? Could he not have made the same determination two days ago?

Whatever, the case, the implications of an analyst at a major firm using the b word are clear. The utterance sent Countrywide and wow, even the Nasdaq, which was supposed to weather this credit storm (after all Google and Cisco aren't in the mortgage business, folks!) tumbling.

My friend in a senior position at Countrywide say that the access to billions in capital has not changed, and that the bank will not collapse.

But, I am concerned. Does the B-word now become a self-fulfilling prophecy? Will creditors now cut Countrywide off on the basis of an analyst comment like they did with Enron (in this case on the basis of a comment and without a hint of fraud)?

I hope not, but crazy things happen in crazy markets. If it happens, Countrywide is headed for a free-fall to 0 and my friend is moving back East.