Countrywide Craziness

Nutso:

Shares of struggling lender Countrywide Financial Corp. rocketed today on news that Bank of America Corp. was in talks to buy the Calabasas-based company.

The stock closed up $2.63, or 51%, to $7.75 after rising as high as $8.91.

A source familiar with the negotiations confirmed the discussions and said an agreement could be reached as soon as Friday, although the person also cautioned that the talks could hit a dead end.

And not helped by:

Two groups representing union pension funds turned their sights on Countrywide Financial Corp.'s directors Thursday, saying board members failed to curb what they called excessive compensation for Chairman and Chief Executive Angelo Mozilo.

One group -- the American Federation of State, County and Municipal Employees -- said Countrywide directors had become conflicted by their own "excessive pay" and stock options that had allowed five members of the board to cash out more than $20 million in stock gains over the last two years.

"Directors who are making as much as CEOs make at other companies may lose the perspective of shareholder advocate, and instead blur their self-interest with that of the executive," said Gerald W. McEntee, president of the federation, which represents union pensions holding 3.5% of Calabasas-based mortgage lender Countrywide's stock.

Separately, CtW Investment Group, which represents the pension funds for the Teamsters, United Farmworkers and other unions that hold Countrywide shares, also criticized the board for excessive compensation for its directors.

"Current and historic director pay is both unjustified and a likely source of the board's passivity in the face of the company's current crisis," CtW Executive Director William Patterson wrote in a letter to Harley Snyder, Countrywide's lead director.

The letter says Snyder bears "central responsibility for Countrywide's egregious compensation."

"Your excessive compensation, together with your aggressive divestment of your own Countrywide stock at the peak of the housing bubble, militates powerfully against any inclination you might have to lead your fellow independent directors or hold Mr. Mozilo accountable," Patterson wrote.

...As the mortgage industry went into a nose dive in late 2006 and 2007, Mozilo cashed out about $140 million in stock options, becoming one of the highest-paid executives in the country.

The Countrywide board is also well-paid, according to a study released Wednesday by the Corporate Library, which studies executive pay.

Countrywide's directors each earned $344,988 to $538,824, according to the company's most recent proxy statement, compared with just over $200,000 for a director serving on a company on the Standard & Poor's 500 index of blue-chip companies, according to the study.

What is of concern to shareholders, however, is that directors were unloading Countrywide shares as the real estate market peaked, according to both groups representing union pensions.

A review of stock-trading activity "for the last two years shows directors enriching themselves by unloading Countrywide stock at a time when the CEO was suggesting a positive outlook to shareholders," McEntee said in his letter. "We think these pay practices may have influenced directors so that they crossed the line from independent to captive directors."