IndyMac Seeks to Preserve Capital

IndyMac Bancorp(IMB Quote) reported yesterday that it suffered its third-consecutive quarterly loss and will be taking other measures to preserve capital, such as deferring interest payments on some preferred securities.

IndyMac said it endured a net loss of $184 million for the first quarter, marking an improvement over the $509 million net loss in the fourth quarter of 2007, but worse than both consensus estimates and the $52 million profit reported in the same period a year earlier.

The narrowing of the net loss reflected a reduction in quarterly provisions for loan losses, and $322 million in losses on loans sold during the fourth quarter of 2007.

Capital Levels

In its earnings release for the first quarter, IndyMac sought to assuage fears of continued capital erosion. Through its direct investment program, the company raised $39 million in capital during the first quarter, after raising $676 million during 2007.

IndyMac also announced the painful step of deferring interest on the holding company's trust preferred securities and suspending dividends of non-cumulative perpetual preferred stock at IndyMac Bank, its main subsidiary. These steps will preserve $10.6 million in capital per quarter. Dividends on common shares had already been suspended for the first quarter of 2008, after being cut in half the previous quarter.

Not surprisingly, IndyMac Capital Trust I, Warrants and Income Redeemable Equity Securities(IMBPR Quote) were down 32% in afternoon trading, closing at $12.55.

Common shares were down 11%, closing at $3.06.

It appears that capital-raising efforts will need to be stepped up. IndyMac Bank's risk-based capital ratio dropped to 10.26% as of March 31, from 10.81% last quarter. This ratio, which factors in asset quality and loan-loss reserve coverage, needs to be at least 10% for an institution to be considered well-capitalized under regulatory guidelines.