Countrywide comes back after Fed cuts discount rate; Hanover, Universal merger sends both stocks up

By Sheri Kasprzak

New York, Aug. 17 - After taking substantial hits earlier this week on mortgage-lending troubles, Countrywide Finance Corp.'s stock rallied on Friday after the Federal Reserve cut the discount rate to 5.75% from 6.25%.

Meanwhile, the broader stock market took off.

The Dow Jones Industrial Average gained 233.30 to close at 13,079.08; the Nasdaq composite index settled up 53.96 to end at 2,505.03; and the Standard & Poor's 500 composite index climbed by 34.67 to close at 1,445.94.

Elsewhere, Hanover Compressor Co. watched its stock jump on Friday after announcing stockholders approved its merger with Universal Compression Holdings, Inc. to form Exterran Holdings, Inc. Closing is scheduled for Monday.

The move sent shares of both companies up on Friday.

In other news, Quaker Fabric Co. saw its shares slide on Friday after announcing it has filed for Chapter 11 bankruptcy protection.

Countrywide's stock gains 13.09%

The stock closed out the session up 13.09%, or $2.48, to settle at $21.43 after jumping by more than 20% during afternoon trading. (NYSE: CFC).

"It's making things better but it's hard to say how long it's going to help," said one sell-side trader of the Fed's decision and its impact on Countrywide's stock. "The next bad news to come out of Countrywide could shove them down even more. It's an extremely volatile situation."

Another sell-side trader said he is not convinced this is the permanent fix for Countrywide.

"It's good for them that their stock is up today but I think investors are still on edge," he said. "I don't think this is a problem that's going to go away. They [investors] are still reeling from the fact that CFC had to borrow money."

On Thursday, Countrywide's stock slid by $2.34, or 10.99%, to close at $18.99 after the Calabasas, Calif.-based mortgage lender borrowed $11.5 billion from a credit facility.

Countrywide moving mortgage operations

On Thursday, Countrywide announced that it will be moving its mortgage production operations into Countrywide Bank, FSB.

David Sambol, the company's chief operating officer, said Thursday in a statement that the mortgage company is already originating more than 70% of its volume through the Countrywide Bank name and expects that almost all of the volume will be originated through the bank by the end of September.

Countrywide is also tightening its underwriting standards for lessened liquidity loans.

Other stocks climb, too

In addition to Countrywide, other lenders like Washington Mutual Inc. and Thornburg Mortgage Inc. performed strongly on Friday.

Thornburg's stock skyrocketed by 21.49%, or $2.66, to close at $15.04 (NYSE: TMA) on Friday after sustaining some dips earlier in the week. The stock fell by 8 cents in after-hours trading.

Thornburg it is gearing up to make a big announcement next week. The lender told Prospect News Thursday it is in a silent period.

WaMu's stock ended the day up 7.84%, or $2.79, to close at $38.37 (NYSE: WM).

"Countrywide is just one example," said one analyst of how the move by the Fed impacts other mortgage companies. "Of course others are going to respond as well."

Hanover, Universal up on merger

In other news, Hanover Compressor and Universal Compression both saw their stock climb on Friday after announcing shareholders backed their merger to form Exterran Holdings.

The merger is set to close on Monday, at which time the stock will begin trading under the NYSE symbol "EXH."

Also, shareholders from both companies approved the adoption of Exterran's stock incentive plan and employee stock purchase plan.

The stock of Hanover was up 5.98%, or $1.39, to close at $24.62 (NYSE: HC) and shares of Universal were up 5.84%, or $4.15, to end at $75.27 (NYSE: UCO).

The two Houston-based companies are full-service natural gas compression service companies.

Payless buys Stride Rite

And speaking of mergers, Payless ShoeSource, Inc. sealed its acquisition of The Stride Rite Corp., changing the name to Collective Brands, Inc.

Shares of Payless gained 90 cents, or 3.84%, to end the day at $24.31 (NYSE: PSS) and Stride Rite's stock edged up by a penny to end at $20.49 (NYSE: SRR).

The acquisition was valued at $900 million.

"Collective Brands is built on the solid foundation of each business unit's individual core competencies, expertise and heritage," said Matthew E. Rubel, Collective Brands' chief executive officer, in a statement released Friday afternoon.

"The new company will reach an expanded customer base with iconic brands through its nearly 4,900-strong retail stores and vibrant wholesale, licensing and e-commerce channels. It will benefit from new efficiencies and greater scale in all aspects of getting footwear and accessories to market."

Stride Rite's CEO, David Chamberlain, retired from his day-to-day operations and will serve as a consultant. Richard Thornton will serve as president and CEO of the Stride Rite unit and Matt Rubel will head the Payless ShoeSource unit. Bruce Pettet will head the Collective licensing unit.

Topeka-based Collective Brands is a footwear, accessory and lifestyle brand company.

Quaker goes bankrupt

Quaker Fabric's stock dipped on Friday after the company announced it filed for bankruptcy relief under Chapter 11 of the U.S. Bankruptcy Code.

The stock fell by 16.67%, or $0.07, to close at $0.035 (Pink Sheets: QFAB).

The company had announced in July that it would likely begin liquidating its business and commence an orderly sale of its assets. Quaker began its two-week planned shutdown on June 29 and did not have the financing needed to resume operations on July 16.

The Fall River, Mass.-based upholstery fabrics maker laid off almost all of its 930 employees on July 2.

The company reached an agreement for a debtor-in-possession financing for up to $1.65 million. Upon court approval, the financing will provide sufficient funding during the Chapter 11 process, according to the Quaker statement released Friday.

First Charter's stock climbs again

A day after Fifth Third Bancorp said it will buy First Charter Corp., First Charter's stock continued to climb on Friday.

The stock gained 2.97%, or 83 cents, to close at $28.77 (Nasdaq: FCTR). On Thursday, when the deal was announced, First Charter's stock jumped by 37.98%, or $7.69, to end at $27.94.

Fifth Third said Thursday it wants to buy First Charter in a transaction valued at $1.09 billion. The deal is set to close in the first quarter of 2008.

Fifth Third's stock made a comeback on Friday after the stock fell by 2.65% on Thursday on news of the merger. The stock gained 4.51%, or $1.64, to settle at $38.03 and gained another 7 cents after hours (Nasdaq: FITB). On Thursday, the stock slipped by 99 cents to end at $36.39.

Even though Fifth Third said it will benefit from a presence in the North Carolina and Georgia banking markets, an analyst said Thursday the move will likely prove to be unwise.

"They're really out of their league," said the analyst. "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 move, according to a statement from Fifth Third, will add $4.9 billion in assets and $3.2 billion in deposits.

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