Global 1 Capital Markets: Countrywide Financial: Is Buffet buying CFC?

Is Countrywide Financial (NYSE:CFC) going to be bought by Warren Buffet's investment vehicle?

Our sources on Wall St. tell us that rumors are circling that Buffet is accumulating a position in CFC which would indicate an acquisition is on the horizon. Buffet is known for buying undervalued assets, but it is hard to see what is undervalued at CFC.

CFC has a portfolio of mortgages whose value is uncertain due to the underwriting standards used to originate the loans. We believe that these loans would only have value to a "value investor" such as Buffet if they were substantially discounted to compensate for the risk of default.

If there is value in CFC it's the franschise value and the value that CFC would have once the mortgage crisis is completed and the housing market returns to normal.

For a long term value play, we see CFC as at best a hold and see. Buffet disclosed that he has taken a large stake in Wells Fargo, and it is conceivable that Buffet sees merging CFC operations into Wells' business model.

We are instructing our portfolio manager in our Hypothetical Hedge Fund to begin accumulation of a position in CFC and Wells Fargo.