I would say they desperately need money if they are paying that high of a rate. Over at bankrate.com, the average rate is 4.85% for a 12-year CD. Interestingly, the next highest rate after Countrywide is 5.44% from Bank of Internet out of San Diego.
So Countrywide is willing to lock itself into a 5.65% rate for 12 months when they can get about the same rate from the Fed Discount Window. Plus, most everyone is expecting a rate decrease sometime next month. Countrywide must be in dire straits if they can’t even wait the couple of weeks or so before the Fed cuts rates.
Here’s my amateur financial analyst/economist view of what I think is happening to Countrywide:
Per federal regulations, banks must maintain a certain capital to loan ratio. If a bank goes below that ratio, I believe the Federal Reserve comes in and takes over. It is likely that Countrywide is perilously close to crossing that threshold. By paying such a high rate on CDs, Countrywide is saying they desperately need capital. My guess is that the commercial credit market and maybe even the Fed Discount window is closed to Countrywide. Their only hope of continuing as a going concern is to get in more deposits.
Countrywide also has the option of selling off their REOs. However, the REOs are likely “marked to market” at a value way above what they will sell for. If Countrywide begins to sell these homes, the remaining homes will get marked to market based on these fire sales and Countrywide’s balance sheet goes to hell.
