Sometimes, being #1 is not enough
Especially when it is being #1 in a collapsing business. That's the conclusion of a Wall Street Journal article entitles "Countrywide Finds No. 1 Spot Isn't Easy" (9/5/07). The business, of course, is the private mortgage lending sector, where Countrywide is a definite #1. It's that big in part thanks to an active program of acquisition.
Along with quoting the old Jack Walsh dictum about being #1 or #2, the article explains the conventional thinking": "Such calamities aren't supposed to befall market leaders. Yes, they may falter a bit in tough times. But conventional wisdom regards the biggest company in any industry -- be it Intel Corp., Procter & Gamble Co. or Anheuser-Busch Cos. -- as practically indestructible. Such companies have the most customers, the largest sales forces and the broadest grasp of their industry's nuances. They are supposed to be like champion squash players holding center court and forcing weaker rivals to scurry in the corners."
Of course, the subprime mortgage boom was a special event, but the article goes on to point out the dangers that any #1 company faces, and the fewer that even the most dominant company can be humbled. The article notes that "Strategies that once fueled breakneck growth may backfire in hard times. And in some cases, market leaders focus so intently on what they know best -- production and sales -- that they get guillotined by unexpected changes in other arenas, such as regulation or finance."
It's all a matter of adaptation, and sometimes the most successful, hard-charging companies have trouble adapting when a major industry disruption takes place. Countrywide (along with the now-bankrupt #2 Ameriquest) is just another example.
But help is on the way. Bank of America, which already has bought a $2 billion stake in Countrywide, is seen as a possible buyer for the whole company. And, according to a Financial Times article, it may be that too-big-to-fail is the watchword:
The Federal Reserve is rumored to have pushed Countrywide and BofA into the deal to avert a deepening banking crisis, giving BofA attractive terms and Countrywide, which it considered ”too big to fail”, a bailout that saves face....
