The Management Deals Get Better At Countrywide (CFC)

Stock options are supposed to be an incentive for doing well. They are priced the day of the grant. If the share price goes up, they have value and can be sold. If the share price goes down, they expire without value. It is a system that would appear to give management a reason to work to the benefit of shareholders.

But, at Countrywide (CFC), the systems is being changed. Stock options that might expire out of the money soon are being extended. In other words, the people at the mortage bank are getting a potential reward for their failures.

According to The Wall Street Journal "in filings with the Securities and Exchange Commission late last week, Countrywide disclosed that eight senior executives were getting one- or two-year extensions on options to buy shares in the company at prices ranging from about $32 to $39. Some of those options would otherwise have expired as early as April 2009."

What a great deal! Fail at providing shareholder value and the company will extend your options. Since the options also represent potential dilution for current shareholders when the underlying stock is sold on the open market, the plan is even worse for investors who have watched the price of Countrywide drop 65% this year.

To add insults to injury, Countrywide’s CEO Angelo Mozilo suggested some senior executives at the company might buy shares at the ultra-low prices. No one took him up on the idea.

Douglas A. McIntyre