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Filed under: Deals, Bad news, Law, Bank of America (BAC), Countrywide Financial (CFC)

The FBI is probing whether Countrywide Financial (NYSE: CFC) committed securities fraud by making false statements about the mortgage bank’s deteriorating financial position.

The Wall Street Journal (subscription required) reports that a “potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide’s losses might be several times greater than it has disclosed.”

Aside from the potential civil and criminal issues at stake, the investigation could kill the takeover of Countrywide by Bank of America (NYSE: BAC). It is not clear whether the mortgage company can make it as an independent operation if the large bank withdraws it offer. If auditors and the government determine that CFC losses are much greater than represented, it might drive the mortgage firm into insolvency.

The Bank of America deal is probably the only way that Countrywide shareholders can get any money for their shares. The company’s stock has dropped from a 52-week high of $42.24 to just above $5, which isn’t much above its 52-week low.

The news reports of the FBI probe is prone to push shares lower. If new, significant losses have to be reported, the price of CFC’s stock might go to zero.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Consumer experience, Recession

For anybody who’s been following the downfall of Sharper Image, there seems to be a pretty obvious lesson: when people are worrying about the rising cost of food and are scrimping to fill their gas tanks, pricey doodads and assorted electronic gewgaws are the first things to go. The next things, of course, are luxury goods.

Saks Fifth Avenue (NYSE: SKS)and Neiman-Marcus, two of the bigger high-end retailers, reported massive quarterly profit gains in the end of 2007, but are now acknowledging that their gains have reduced considerably in 2008. Obviously, part of this is the standard post-Christmas drop, but there has also been a significant slowdown in year-to-year growth. In 2008, Saks is expecting a minor increase over 2007’s sales, but a slight decrease in gross margin.

Part of this is due to a reduction in expenditures by “aspirational shoppers,” or people who can’t really afford super-luxe items, but occasionally buy them anyway. What’s particularly interesting, though, is that super-rich customers are also slicing back on their purchases, a trend that some analysts attribute to a contagious feeling of economic worry. In other words, the overall belief that the economy is approaching a recession is reducing spending even among people for whom the economic slowdown isn’t a pressing concern. In light of this trend, Saks’ stock price has dropped from nearly $21 in the beginning of the year to under $13.

In this context, it looks like the next year will be tough for manufacturers and importers of high-end luxury items. After all, if the people who can actually pay top dollar are cutting back, what will happen to the people for whom luxuries are a splurge?

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