Countrywide drops, partly rebounds after facility draw; Fifth Third down, First Charter up on merger

By Sheri Kasprzak

New York, Aug. 16 - It was more bad news for Wall Street after Countrywide Financial Corp. said Thursday it was drawing on a $11.5 billion credit facility in an attempt to supplement its liquidity position.

Following the announcement, stocks began a freefall with the Dow Jones Industrial Average dropping by more than 300 points before staging a big rebound to close out the day down 15.69 at 12,845.78; the Nasdaq composite index fell 7.76 to end at 2,451.07; and the Standard & Poor's 500 composite index edged up 4.57 to settle at 1,411.27.

Countrywide's own stock went on a similar ride but finished markedly lower despite a partial rebound.

Elsewhere, Fifth Third Bancorp intends to buy First Charter Corp. in a $1.09 billion deal and expand its banking presence into North Carolina and Georgia.

The move sent Fifth Third's stock down but pushed shares of First Charter up substantially on Thursday.

In other merger news, Thomas & Betts Corp. signed an agreement to buy Lamson & Sessions in an all-cash deal worth $450 million.

Lamson & Session's stock took off on Thursday but Thomas & Betts's stock dropped.

Countrywide stock dives

"It really is an indication of just how bad the situation is," said one sell-side trader when asked about how the Countrywide news impacted the broader stock market.

"This is a huge mess. You're talking the biggest mortgage lender in the country taking on an enormous loan. Investors want to know there's a plan and slapping a Band-Aid on a gaping wound isn't going to help."

One analyst agreed that it's a bad move.

James Fotheringham, analyst at Goldman Sachs, said in a research report released Thursday, "Credit costs are set to increase even further than we had anticipated as riskier loans are added to an already troubled portfolio."

In addition to the news that it drew on the credit facility, Countrywide said Thursday that it will move its mortgage production operations into Countrywide Bank, FSB.

By 10 a.m. ET, Countrywide's stock had already fallen by 16.67%, or $3.55. At the end of the day, the stock was lower by $2.34, or 10.99%, to close at $18.99 (NYSE: CFC). The stock went on to gain 55 cents in after-hours activity.

At one point it traded as low as $15.00, 29.5% below the previous close.

"For many years, Countrywide's liquidity management framework has focused on maintaining a diverse, multi-layered assortment of financing alternatives," said Countrywide's chief operating officer David Sambol, in a news release.

"A primary component of this framework is a committed, unsecured credit facility of $11.5 billion provided by a syndicate of 40 of the world's largest banks. In response to widely reported market conditions, Countrywide has elected to draw upon this entire facility to supplement its funding liquidity position. Over 70% of this facility has an existing term greater than four years and the remainder has a term of at least 364 days."

Sambol went on to say in the statement that Countrywide has taken steps to increase liquidity and grow its franchise.

"We are already originating in excess of 70% of our total origination volume through the [Countrywide] Bank, and expect to accelerate our strategy so that nearly all of our volume will be originated in our bank by the end of September," Sambol noted.

Sambol said Countrywide is also tightening its underwriting standards for lessened liquidity loans and expect that 90% of the loans it originates will be GSE-eligible and meet the bank's investment criteria.

Fifth Third to buy First Charter

Elsewhere, Fifth Third Bancorp announced it intends to buy First Charter Corp. in a transaction valued at $1.09 billion.

The merger is expected to close in the first quarter of 2008.

The news sent First Charter's stock skyrocketing on Thursday. The stock climbed 37.98%, or $7.69, to end the session at $27.94 (Nasdaq: FCTR).

"Obviously, it's great news for First Charter," said one sell-side trader. "They're [Fifth Third] buying at a major premium so it's great news for them."

On the flip side, Fifth Third's stock fell by 99 cents, or 2.65%, to close at $36.39 (Nasdaq: FITB) on Thursday.

The move would expand Fifth Third's presence into North Carolina and suburban Atlanta.

Even so, one analyst said he felt the move is not immediately beneficial to Fifth Third.

"They're really out of their league," said the analyst of the region they're moving into. "You've got big-name banks based out of North Carolina and we feel that they'll have trouble competing."

Under the terms of the merger, Fifth Third will pay $31.00 per share for First Charter's stock. Seventy percent of the consideration will be paid in Fifth Third stock and the rest in cash.

The move adds 57 of First Charter's North Carolina branches and two of the target's suburban Atlanta branches.

The merger, according to Fifth Third, will dilute its 2008 earnings by 2% and will be relatively neutral to its 2009 earnings per share. The transaction will reportedly be modestly accretive to its 2009 earnings per share, excluding amortization of intangibles.

"This furthers our penetration into fast-growing Southeastern metropolitan markets at a reasonable price," said Kevin Kabat, Fifth Third's chief executive officer, in a statement.

"The addition of First Charter provides us with an entry into the attractive North Carolina market and further diversifies our footprint into new, higher growth markets. First Charter is a very high-quality company, with a banking model that emphasizes the strength of local decision-making. This fits perfectly with our affiliate model and I'm excited to welcome First Charter associates to our team."

The move, according to a statement from Fifth Third, will add $4.9 billion in assets and $3.2 billion in deposits.

"First Charter expands our presence in the Southeast, where we have focused recent acquisitions and de novo efforts," Kabat went on to say in the statement.

"Given that First Charter represents a new market for Fifth Third, we do not expect consolidation activity. We have long had our eye on the Carolinas and Charlotte is a terrific new market for us. We also add a presence in Atlanta, which enhances our positioning in Georgia when combined with our Augusta presence."

Thomas & Betts to buy Lamson & Sessions

In other merger news, Thomas & Betts said it will buy Lamson & Sessions for $450 million.

The news sent Thomas & Betts's stock down $2.03, or 3.7%, to close at $52.84 (NYSE: TNB) on Thursday but up 70 cents in after-hours trading.

Lamson & Sessions's stock climbed by 31.36%, or $6.16, to end at $25.80, gaining another 23 cents after hours (NYSE: LMS).

Thomas & Betts said it will pay $27.00 per share for Lamson & Sessions in an all-cash transaction, which is expected to close in late 2007.

"This acquisition is a great fit with Thomas & Betts and is consistent with our strategy of expanding our portfolio of market-leading brands and leveraging our business infrastructure to enhance our already-strong relationship with distributors and end users of electrical products," said Dominic Pileggi, Thomas & Betts's CEO, in a statement.

"Lamons & Sessions is a well-known, leading North American supplier of non-metallic electrical boxes, fittings, flexible conduit and industrial PVC pipe."

Thomas & Betts said in its statement that the acquisition would contribute $500 million to its revenues and be accretive to earnings by $0.15 to $0.20 per share in calendar year 2008.

Memphis-based Thomas & Betts makes electrical components used in construction, industrial and utility markets.

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