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Struggling IndyMac: Depositors Pulling Cash

IndyMac Bancorp on Tuesday said depositors were withdrawing cash at an "elevated" pace after a prominent U.S. senator recently questioned the big mortgage lender's ability to survive the U.S. housing crisis.

Shares of the largest independent, publicly traded U.S. mortgage lender fell as much as 52 percent.

Paul Miller, a Friedman, Billings, Ramsey & Co analyst, said shareholders could be wiped out, and cut his price target for the parent of the IndyMac Bank thrift to zero per share from $1.00.

"It's hard to gauge how this situation will resolve itself," said Christopher Wolfe, managing director at Fitch Ratings, which downgraded IndyMac on Tuesday. "We see a high likelihood of some kind of regulatory intervention occurring, which could result in asset dispositions, or the thrift going into receivership."

In a regulatory filing, IndyMac said it still faces "elevated levels of deposit withdrawals" after Sen. Charles Schumer, a New York Democrat, late last month raised questions to regulators about a potential collapse.

Mortgage rivals that have already met their demises include New Century Financial and American Home Mortgage Investment , which filed for bankruptcy protection last year. Countrywide Financial Corp avoided possible collapse when it was acquired last week by Bank of America .

IndyMac said it is working with regulators on a new business plan after soaring credit problems resulted in $896 million of losses in the nine months ended March 31.

The lender said it has $18 billion of deposits, of which more than 96 percent have Federal Deposit Insurance Corp insurance.

Acela Ducharme, a Los Angeles resident, on Tuesday said she withdrew a small amount from a certificate of deposit at a branch at IndyMac's headquarters in Pasadena, California.

"I have to see if the problem will stabilize," she said. "I want more security."

IndyMac set plans on Monday to eliminate 3,800 jobs, or 53 percent of its work force, and stop offering most home loans.

It also projected a larger loss in the second quarter than the $184.2 million loss it posted from January to March.

Regulators concluded the company is not "well-capitalized," and IndyMac has about $1.7 billion of operating liquidity, a regulatory filing showed.

In afternoon trading, IndyMac shares were down 30 cents, or 42 percent, at 41 cents. The shares have slid 99 percent in the last year, cutting IndyMac's market value to around $40 million from about $3.3 billion in the middle of 2006.

DEFAULT PROSPECT RAISED

Like American Home Mortgage, IndyMac once specialized in "Alt-A" mortgages that often don't require borrowers to document income or assets.

Its $77 billion of mortgage loans in 2007 gave it a 3.2 percent market share, ranking ninth nationally, according to the newsletter Inside Mortgage Finance.

Fitch cut its issuer default ratings for IndyMac Bancorp to "CC," a low junk grade, from "B-minus," and for IndyMac Bank to "CCC" from "B." It said more cuts are possible if IndyMac defaults or is put into receivership.

The rating agency also assigned IndyMac's roughly $720 million of uninsured deposits an "average" recovery rating, suggesting that uninsured depositors might get less 31 percent to 50 percent of their money back.

FBR's Miller said shareholders might expect even less.

"Given continued home price declines, management's higher loss estimates, recent ratings agency downgrades on the company's mortgage-backed securities and the company's decision to stop new mortgage originations, we do not believe that there is any value left for common shareholders," he wrote.

IndyMac also faces several shareholder lawsuits seeking class-action status that accuse it of misleading investors about its financial condition.

The company said it plans to keep offering reverse mortgages to older borrowers, and operate 33 southern California branches.