Countrywide In Trouble With Mass. Pension Fund

Countrywide is being sued by the Massachusetts  State Pension Fund.  From the Boston Herald:

Michael Travaglini, executive director of the state pension system, said the state will seek to become the lead defendant in any class-action case. It will file suit by a court-ordered deadline of Oct. 15, Travaglini said.

The state suit, like others, will likely charge Countrywide with misrepresenting its financial condition to investors.

The state lost between $15 million to $20 million due to Countrywide’s fall.

This is what I've been screaming about since April 1, 2007.  Countrywide' Financial s Chairman, Angelo Mozilo, has been speaking out both sides of his mouth to Wall Street.  Wall Street swallows this crap like a fat kid gorges on sweets.  Their weak spot?  Countrywide has a good "franchise".  What Wall Street means is that they have a great retail presence in the Midwest- the "heart" of the country.

The good ol' heartland ain't what's causing them problems; it's their home state of California.  Oh, yeah...and Arizona, and Nevada, and Florida.  The go-go states led the real estate boom of the first half of the decade and Countrywide led the charge with negative amortization loans.  Now, they have to face the music when they restate their earnings do to accrual accounting methods:

The rest of the option ARMs remain on lenders' books, where for now they're generating huge phantom profits for some lenders. That's because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment -- the so-called fully amortized amount -- even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

For many industries, so-called accrual accounting, which lets companies book sales when they contract for them rather than when they receive the cash, makes sense. The revenues will eventually come. But accrual accounting doesn't apply well to option ARMs, since it's more difficult to know if unpaid interest will ever cross a banker's desk.

Don't buy stock in Countrywide Financial.  Angelo will continue the duplicitous statements, Drew will keep leading cheers, and Bank of America will buy them next year.  Bof A will buy them for no more than 18 bucks a share and probably closer to $8/share.