IndyMac Profit Crashes, Stock Soars

"The goal really and the focus for IndyMac is to try to get those credit costs behind us as best we can so that we can get back with our core business to making money," Perry said on a conference call. "We've significantly changed our production business model to include not only a national retail platform, but we've temporarily suspended some channels and products .... so that we could shrink our balance sheet and we've permanently closed some higher risks channels and products."

IndyMac's dismal results come as regulators work with the largest banks and lenders to provide more relief for troubled borrowers by avoiding foreclosures. Bank of America(BAC Quote - Cramer on BAC - Stock Picks), Citigroup(C Quote - Cramer on C - Stock Picks), Countrywide Financial(CFC Quote - Cramer on CFC - Stock Picks), JPMorgan Chase(JPM Quote - Cramer on JPM - Stock Picks), Wells Fargo(WFC Quote - Cramer on WFC - Stock Picks) and Washington Mutual(WM Quote - Cramer on WM - Stock Picks), working with the Treasury and Department of Housing and Urban Development, are announced the initiative Tuesday morning.

Last month, Countrywide, the nation's largest lender, posted a fourth-quarter loss of $422 million, or 79 cents a share. For the full year, Countrywide reported a loss of $704 million, or $2.03 a share. The Calabasas, Calif.-based company has been so troubled by the deepening mortgage crisis that it agreed to a sale to BofA in January for $4 billion in stock.

IndyMac says it remains well-capitalized, as it has not repurchased shares since 2002 and it raised $676 million in capital in 2007. Total operating liquidity was "in excess of $6 billion" at the end of the quarter, primarily because a majority of IndyMac's business is through its bank subsidiary, it said.

Loans and securities that were charged off by IndyMac in the quarter totaled $179 million. Excluding non-investment grade and residual securities, total fourth-quarter charge offs were $99 million, and the total credit reserve at the end of the year amounted to $1.1 billion.

This year, IndyMac expects "a small profit of roughly $13 million," which includes first-quarter restructuring charges, Perry added. IndyMac said last month that it is cutting 2,400 jobs or 24% of its overall workforce. The layoffs come in addition to a program begun in September.

"Our goal is to return IndyMac to profitability in [the second quarter] and grow our profit each quarter thereafter, and I believe that we have a realistic shot of achieving this goal," Perry said. "If we can do this, we will preserve IndyMac's $16, or so, book value per share in 2008, which I believe is a good foundation from which to being growing shareholder value again.

"Even if we are wrong in our forecast in 2008, and the mortgage and housing markets worsen beyond what we are already forecasting ... we have the capital ... to absorb nearly triple our presently forecasted 2008 credit costs and fight our way through until the housing and mortgage markets do stabilize."

Still some analysts remain skeptical of IndyMac.

Fox Pitt Kelton's Howlett writes in a note that IndyMac's expected $372 million in embedded credit costs for this year "appears too low given the recent trajectory of delinquencies." Howlett has an in-line rating on the company.

"More specifically, the company's model forecasts [non-performing assets] to increase from 4.61% to 7.71% by [fourth quarter 2008], which we think is too light," he says.

Shares recently were rising 11.2% to $8.45.