At first glance, both issues seem similar- the B shares seem
superior if you only look at the numbers, but they have recently been
trading at a discount to the As. Of course the numbers are not the
whole story in this case. Here is the data on the preferreds:

1)
Ratings: Both issues are junior subordinated preferred stock and have
an S&P rating of BBB and a Fitch rating of A-. The A preferred has
a Moodys rating of Baa1, while the B preferred is unrated by Moodys.
Based on this criteria, the two issues seem to be a tied, although I
would give the As a very slight slight edge because of the Moody’s
rating.

2) Dividends: The As have an annual coupon of 6.75. The Bs
have an annual coupon of 7.00. Both issues pay quarterly. The Bs get a
definite edge here because of the higher coupon. The current annual
yield of the Bs is about 60 basis points higher.

3) Call Date: The
As are callable April 11, 2008 at 25. The Bs are callable Nov. 1,
2011 at 25. So the Bs get a small edge here because of better call
protection. Both issues are trading under 20 - well below the call
price, but this could become a factor longer term if interest rates
drop dramatically.

4) Ex-dividend date: The A shares went
ex-dividend yesterday (Sept. 26) and will pay out a dividend of $0.4219 per
share. The B shares go ex-dividend next month and should pay $0.4375.
So the Bs have the edge because the next projected dividend payment is
only a month away, while the As next projected payment is three months
off.

In order to understand the B discount, you would need to
delve into the prospectus. The A shares do seem to have an edge in two
ways:

A) Interest deferral: Countrywide can defer interest payments
on the As for five years before a default would occur. For the B’s,
they can defer interest payments for ten years before a default would
occur.

B) Subordination: I found the following passage in the
prospectus of the B shares which seems to imply the Bs rank behind the
As in the event of a default, since the As were issued first in 2003,
while the Bs were issued later in 2006. This passage is written in
legalese and is very hard to comprehend- I wish the SEC would mandate
simpler and clearer language in prospectuses.

“The
subordinated debentures will be subordinated to all existing and future
senior, subordinated and junior subordinated debt of Countrywide
Financial Corporation (including the junior subordinated debentures
underlying our other outstanding trust preferred securities and our
guarantees of our subsidiarys junior subordinated debentures
underlying its trust preferred securities), except for any future debt
that by its terms is not superior in right of payment, and will be
effectively subordinated to all liabilities of our subsidiaries. As a
result, the capital securities also will be effectively subordinated to
the same debt and liabilities. Countrywide Financial Corporation will
guarantee the capital securities on a junior subordinated basis to the
extent described in this prospectus supplement. “

If one
believes the likelihood of a Countrywide bankruptcy is remote, a good
strategy might be to go long the B shares and short the As. Another
way to play this is to simply go long the Bs and use the As as a
trading signal.

If the Bs start trading above the As, you
would liquidate your position. Buy it back when they trade below the
As etc. I dont have any positions in these two preferred stocks
mainly because they are not very liquid and have fairly large bid-asked
spreads. But I have recently added them to a watch list.

Full Disclosure: I do not own the Countrywide preferreds described above.