IndyMac Posts Wider Loss, Cuts Dividend in Half

IndyMac Bancorp

, one of the largest independent U.S. mortgage lenders, on Tuesday posted a quarterly loss more than five times larger than it had projected, hurt by mounting delinquencies and a collapse in demand to buy its home loans.

The company halved its dividend, as expected, and said another cut was possible if it keeps losing money.

"It's going to be a tough year, year-and-a-half," Chief Executive Michael Perry said on a conference call.

IndyMac shares were nevertheless up $1.33, or 10.4 percent, at $14.10 in afternoon trading after the parent of IndyMac Bank, one of the nation's largest savings andloans, said it had enough liquidity to ride out the housing slump. The stock is still down more than two-thirds this year.

The third-quarter net loss for the Pasadena, California-based company totaled $202.7 million, or $2.77 per share, compared with year-earlier profit of $86.2 million, or $1.19 per share.

This was IndyMac's first quarterly loss since the fourth quarter of 1998.

Excluding items, the loss was $2.74 per share, according to Reuters Estimates, six times the analysts' average forecast for a loss of 46 cents. IndyMac on Sept. 7 had forecast a loss of nil to 50 cents per share.

"Conditions in mortgage markets are deteriorating so rapidly that management guidance often becomes obsolete nearly as soon as they publish or report it," wrote Lehman Brothers analyst Bruce Harting. "IndyMac demonstrates the point."

He rates IndyMac "underweight," but said its $1.3 billion capital cushion appeared sufficient to weather six quarters like the third quarter before regulators become concerned.

IndyMac joined Countrywide Financial and GMAC's Residential Capital among big independent lenders to report large quarterly losses.

Dividend Cut Possible

The thrift used to specialize in "Alt-A" home loans, which often go to people who can't fully document income or assets.

As investors stopped buying these loans, IndyMac transformed itself to emphasize smaller, safer loans that government-sponsored enterprises Fannie Mae and Freddie Mac will buy.

Countrywide did the same, and GMAC has also slashed volume of lower-quality loans.

"This credit market clearly has challenged us and tested us like we've never been tested before," Perry said. "We (also) got slammed by the complete closure of the non-GSE market."

IndyMac reduced its quarterly stock dividend to 25 cents per share from 50 cents. Perry called another large cut "prudent" if IndyMac isn't profitable in the fourth quarter.

He said IndyMac might be "modestly profitable" or lose money in the fourth quarter and in 2008, but said quarterly losses should be substantially below the third quarter's.

The company said it had ended September with a Tier 1 core capital ratio of 7.48 percent, above the 5.00 percent level that regulators consider "well-capitalized."

IndyMac also said it had raised operating liquidity to a record $6.3 billion, helped by a $5 billion jump in deposits since June.

Pretax credit losses quadrupled from the second quarter to $407.7 million, while losses from the sale of mortgages totaled $167.2 million. Results also reflected costs to eliminate 1,547 jobs, as well as hedging gains.

Quarterly mortgage production fell 30 percent to $16.8 billion. Fourth-quarter production may total $12.4 billion, Perry said.

IndyMac ended September with $16.8 billion of deposits and $33.7 billion of assets.