IndyMac Posts Record Loss Calls Reserves Adequate (Update5)
IndyMac Posts Record Loss, Calls Reserves Adequate (Update5)
By David Mildenberg and Jody Shenn
Feb. 12 (Bloomberg) — IndyMac Bancorp Inc., the second-
biggest independent U.S. mortgage company, posted a record
fourth-quarter loss. The shares rose after it said reserves are
adequate even if defaults continue building at the recent pace.
The net loss was $509.1 million, or $6.43 a share, compared
with a profit of $72.2 million, or 97 cents, in the same period
a year earlier. The company;s $2.4 billion in reserves will
protect it should late payments and default rates continue at
the fourth quarter;s “horrible;; rate, Chief Executive Officer
Michael Perry said on a conference call with analysts.
After reporting the company;s first annual loss in its 23-
year history and suspending the dividend “indefinitely,;; Perry
is trying to return IndyMac to profitability by forgoing most
home-equity loans and mortgages that don;t qualify for sale to
government-backed Fannie Mae and Freddie Mac. IndyMac has lost
80 percent of its market value in the past 12 months on concern
it may not survive as a separate company.
“A forecast of profitability in 2008 looks optimistic,;;
said Brian Horey, a general partner at Aurelian Partners LP, a
New York-based investment firm that last year moved from betting
against shares of subprime lenders to betting against companies
focused on better credits, including IndyMac. “The loans they
originated in the last two years put them near the eye of the
storm, and credit costs are likely to be an ongoing problem.;;
IndyMac added 64 cents, or 8.4 percent, to $8.24 in
composite trading today on the New York Stock Exchange. The
stock fell as much as 10.5 percent and climbed as much as 21.2
percent during the session.
Analysts; Estimates
The Pasadena, California-based company was expected to have
a loss of $1.57 a share, the average estimate of seven analysts
surveyed by Bloomberg. Shares fell as much as 11 percent before
Perry;s comments on the conference call.
Suspending the annual dividend of $1 a share and reducing
IndyMac;s balance sheet by 14 percent because of limited lending
may make $400 million of added capital available. The moves will
avert the need for “fire-selling either the entire company or
our reverse mortgage business, which should be a tremendous
long-term asset for our shareholders,;; Perry said.
The largest independent U.S. mortgage company, Countrywide
Financial Corp., has agreed to be bought by Bank of America
Corp. for about $4 billion.
Perry said in an interview last month that IndyMac has a
“good shot;; at rebounding from losses in 2007 and posting a
profit in the second half of this year. Falling interest rates
on home mortgages may encourage homeowners to refinance and
boost production of loans above previous forecasts, he said.
`Solidly Profitable;
IndyMac;s decision to curtail lending “leaves us still
with a pretty substantial and solidly profitable production
model that we expect will produce over $40 billion in home
loans,;; he said.
In a letter to shareholders today, Perry said he would
resign as CEO if he;s not re-elected to the board at the
shareholder;s meeting on May 1.
The company forecasts it will need to add $372 million in
reserves for loan losses in 2008, down from $1.45 billion last
year. “This is the key driver of our expected return to
profitability,;; Perry said.
IndyMac said the $2.4 billion in reserves is adequate if
the pace of borrowers missing one or more payments continues at
the fourth-quarter rate until October and then declines to 70
percent of that level by the end of next year.
“You can;t express with tremendous confidence that you;ve
got it all behind you,;; Perry said in a telephone interview
today. The company would still be “well-capitalized;; under
regulatory rules if credit costs from its portfolio and
discontinued lending operations triple its projections, he said.
`Paying the Piper;
A U.S. recession “wouldn;t be that material;; to IndyMac;s
results, Perry said in the interview. An economic slowdown will
have more of a negative impact on debt such as credit cards and
auto loans, he said. “Fortunately for IndyMac, we don;t have
any of those. We;re paying the piper now.;;
The company, which had been a specialist in atypical
mortgages, curtailed home loans last year that didn;t meet
standards that would make them eligible for sale to government-
chartered companies including Fannie Mae or Freddie Mac, the two
biggest sources of mortgage money.
IndyMac is also making and holding on to “jumbo;; loans,
which are larger than the $417,000 limit for mortgages that
Fannie Mae and Freddie Mac will buy. Congress has debated
raising that limit, which may benefit lenders including IndyMac.
To contact the reporters on this story:
David Mildenberg in Charlotte, North Carolina,
at
