IndyMac Revs Its Outlook

The home lender said it expects to significantly cut its expected first-quarter loss vs. the $509 million it shed in the fourth quarter.
By Laurie Kulikowski ,

IndyMac

(IMB)

shares spiked as much as 32% Thursday after the one-time Alt-A mortgage lender said that business is improving.

The Pasadena, Calif.-based lender said its loss for the first quarter will be roughly 50% to 65% less than in the fourth quarter, according to a filing with the

Securities and Exchange Commission

. Approximately 25% of the loss is coming from one-time severance and office closing costs, IndyMac said.

"Given the decline in our stock price, some people have questioned IndyMac's survivability in the current environment. I am here to tell you that I believe we have turned a corner and that our business is improving," CEO Mike Perry said in the filing. "Our forecasts show continued declines in credit costs and in our overall losses each quarter for the remainder of the year."

Last quarter, the struggling company recorded a loss of $509.1 million, or $6.43 a share. Analysts, on average, expect the lender to post a first-quarter loss of 98 cents a share.

IndyMac's shares were rising 67 cents to $3.92 on Thursday. Still, the stock is down more than 80% from a year earlier.

"Our stock remains under pressure because, as the last major independent home lender, we are at the center of the current storm in the housing and mortgage markets, and, to sustain sufficient capital levels to keep IndyMac Bank safe and sound through this crisis period, we have been raising capital every day through the

direct stock purchase plan, which itself puts pressure on our stock price," Perry added.

At the end of December, IndyMac's banking subsidiary had the

highest ratio of nonperforming loans to core capital and reserves

amongst the nation's 20 largest banks and thrifts, at 57.32% as of year-end, according to an analysis by

TheStreet.com

.

IndyMac's first-quarter credit costs "will be down roughly fourfold from the $863 million" in the fourth quarter. Operating liquidity of about $4 billion "remains strong," the filing said.

Last year, IndyMac raised more than $670 million in new capital "in advance of the current crisis and the major capital raises recently completed by other financial institutions impacted by the crisis," the filing said. The company continues to raise capital through its direct stock purchase plan and has raised $84 million since Feb. 26, including $45 million in April.

The earnings guidance was in conjunction with IndyMac's announcement that its CFO Scott Keys has taken a medical leave of absence as of April 25, according to the filing. Blair Abernathy, IndyMac's head of capital markets activities including secondary marketing, succeeds him.

The company still plans to report first-quarter earnings on May 12.

The news comes in contrast to that of

Countrywide Financial

(CFC)

, which agreed to sell itself to

Bank of America

(BAC) - Get Report

. Countrywide said earlier this week that it recorded a

first-quarter profit loss of $893 million

, or $1.60 a share, more than double the lender's loss in the fourth quarter. Countrywide took $3.05 billion in credit-related writedowns and provisions in the first three months of the year.

As the credit crisis intensified last summer, IndyMac and other lenders were unable to sell loans into the secondary market. The company has been converting its loan production from primarily securitized loans to loans that can be either held in its portfolio through its bank subsidiary, sold to one of the government-sponsored enterprises such as

Fannie Mae

(FNM)

or

Freddie Mac

(FRE)

, or those that qualify under guidelines by the Federal Housing Administration. While these loans tend to be better in quality, production at many lenders has been severely curtailed due to the lack of investor demand in the secondary market to buy securitized loans.

IndyMac produced nearly $10 billion in new mortgage loans in the first quarter, it said.

IndyMac said last week that it reached an agreement with Fannie Mae to deliver jumbo loans as part of the government's mortgage assistance program in which it expanded the limits of the GSEs so that they could purchase and guarantee jumbo mortgage loans up to $729,750.

Two weeks ago, Freddie Mac agreed to purchase new conforming jumbo mortgages with original loan amounts up to $729,750 from

Wells Fargo

(WFC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Citigroup

(C) - Get Report

and

Washington Mutual

(WM) - Get Report

, it said.

"We are now achieving profitability with this new production model, with all of our nine regional wholesale centers and 104 of our 152 retail lending branches being profitable in March," Perry said in the filing.

Investors seemed to be pleased with the news on Thursday but not everyone was as optimistic.

Eric Wasserstrom, an analyst at UBS, estimates IndyMac's net loss to be in the range of $178 million to $331 million, "well above our forecast for a net loss of $92 million," he writes in a note. "The company has previously forecasted a

first quarter loss of $38 million."

"We continue to view profitability as unlikely in the near to medium term, as we expect that credit will continue to deteriorate at an accelerated rate, necessitating additional reserving and impairment charges over the course of 2008," Wasserstrom adds. "However, its liquidity position seems to be stable at present."

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