By Elizabeth Hester
Aug. 15 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, fell 13 percent, the most since the 1987 stock-market crash, after Merrill Lynch & Co. raised the possibility of bankruptcy.
``Effective insolvency'' would result if creditors force Countrywide to sell assets at depressed prices or investors lose confidence in its ability to raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note today.
Shareholders shouldn't ``understate the importance of liquidity,'' Bruce wrote. ``If liquidations occur in a weak market, then it is possible for CFC to go bankrupt,'' said Bruce, who downgraded Countrywide to ``sell'' from ``buy.'' The company trades under the ticker CFC.
Countrywide's shares have lost almost half their value this year on concern a credit crunch in the mortgage industry will erode profit at the Calabasas, California-based company. KKR Financial Holdings LLC, Scottish Re Group Ltd. and other companies tied to the mortgage industry dropped today on speculation earnings will be hurt by the crisis.
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