IndyMac Bancorp posted a $509.1 million fourth-quarter loss and suspended its dividend indefinitely Tuesday, but expects to be profitable sooner than expected as it recovers from soaring mortgage losses caused by the U.S. housing slump.
The shares of the second largest publicly traded, independent U.S. mortgage lender rose $1.10, or 14.5 percent, to $8.70 in afternoon trading. IndyMac expects to turn a profit in the second quarter after last month forecasting a return to profitability in the second half.
Through Monday, IndyMac shares had fallen 79 percent in the previous year, as analysts questioned whether the company could survive on its own.
"2007 was a terrible year for our industry," Chief Executive Michael Perry said in a letter to shareholders. "Innovative home lending went too far. ... All home lenders, including IndyMac, were a part of the problem, and, as IndyMac's CEO, I take full responsibility for the mistakes that we made."
The net loss for the Pasadena, California-based parent of IndyMac Bank equaled $6.43 per share and compared with a profit of $72.2 million, or 97 cents, a year earlier.
Analysts on average expected a loss of $1.38 per share, according to Reuters Estimates. IndyMac set aside $2.38 billion for bad loans, quadruple its year-earlier reserves, and up 71 percent from the end of September.
For all of 2007, IndyMac lost $614.8 million, or $8.28 per share, the first annual loss in its 23-year history. IndyMac plans to boost capital by $400 million in 2008 by shrinking its balance sheet, and said eliminating its 25 cent per share quarterly dividend will save $81 million a year.
The losses shows how the nation's housing slump has extended past subprime mortgages into the medium- and higher-quality loans in which IndyMac long specialized.
Countrywide Financial and GMAC's Residential Capital, the largest U.S. mortgage lenders not owned by banks, reported fourth-quarter losses of $422 million and $921 million, respectively.
Bank of America, the second-largest U.S. bank, agreed last month to buy Countrywide for about $4 billion. GMAC is owned largely by private equity firm Cerberus Capital Management and General Motors.
Credit Deterioration 'Significant'
IndyMac said it is further tightening lending standards and curtailing home equity loans and new home financing. Book value per share fell to $16.61 Dec 31 from $24.31 Sept 30.
"Credit deterioration is significant," wrote Lehman Brothers Inc analyst Bruce Harting. "The company is taking drastic actions to try to preserve capital, but ... there is virtually no margin to cover growing credit costs."
He rates IndyMac "underweight."
IndyMac said it may in 2008 earn $13 million, or 16 cents per share, assuming it sets aside 74 percent less for soured loans. Analysts expected a loss of 22 cents per share.
The company long specialized in "Alt-A" home loans, which often go to people who cannot fully document income or assets. But as investors stopped buying such loans and delinquencies mounted, IndyMac transformed itself to emphasize smaller loans that government-sponsored enterprises Fannie Mae and Freddie Mac will buy.
Fourth-quarter mortgage production fell 53 percent from a year earlier to $12.1 billion and IndyMac last month said it would eliminate 2,403 jobs, or 24 percent of its work force.
On a conference call, Perry said IndyMac has halted its company match for employee retirement accounts and there could be further cuts because "things could get worse."
But he said the company is benefiting from something of a "boom" in mortgage refinancings, following last month's interest-rate cuts by the U.S. Federal Reserve.