Updated from Jan. 23
Fitch Ratings on Thursday cut
to junk status, as the collapsing credit and housing markets continue to weigh on the mortgage lender.
The rating agency cut IndyMac's rating to BB from BBB-minus, citing challenges that the lender is likely to face in its efforts to return to profitability as a result of the mortgage market deterioration.
"Fitch believes that, due to company's mono-line focus and diminished competitive advantage, credit risk is more speculative in nature," the ratings agency said.
IndyMac "has taken decisive steps to address credit quality and improve profitability," it said. "However, Fitch believes that the benefits from such measures may not be realized in the near term as the economics of the residential mortgage business remain difficult due to the confluence of several factors," including tighter agency lending guidelines and limited growth in nonconforming loans.
The move comes a day after Moody's Investor Services said it is dropping coverage of the troubled lender. Moody's also had IndyMac rated at junk status.
IndyMac, one of the few remaining independent mortgage lenders at this point, had maintained a single B rating from Moody's for its holding company, while its bank subsidiary had a D-minus rating when it came to financial strength. Moody's also rated IndyMac's deposits at Ba3 and had a negative outlook on the Pasadena, Calif.-based lender.
Moody's cited "business reasons" as the reason for the withdrawal. A spokesman referred additional comments to Moody's withdrawal policy, available on the agency's Web site, and declined to comment further on the decision.
"Under certain circumstances, Moody's will withdraw a rating for an issuer or an obligation for reasons unrelated to the adequacy of information, or bankruptcy or reorganization status of the credit," according to the policy. "When this occurs, Moody's will balance the market need for a rating against the resources required to maintain and monitor a rating."
IndyMac said that the action "was taken solely at our request," in a response posted on the company's internal blog Wednesday evening.
"Our Moody's rating recently came up for renewal and as we look to reduce costs (we will save roughly $350,000 annually including the elimination of one employee in our staff reductions), we concluded that maintaining ratings with all ratings firms, does not make business sense and their continual downgrades created more perception risk than reality," the lender said. "Since our relationship with Moody's was approximately a year old, we chose to terminate this relationship."
IndyMac said that because its business operates within a federal thrift, it does not rely on corporate debt markets for funding. Furthermore "the presence of the ratings and the actual level of ratings has no impact on our ability to access deposits or Federal Home Loan Bank advances, which comprise our primary sources of liquidity," it said. IndyMac has approximately $6 billion in total liquidity, it added.
IndyMac has also requested that Dominion Bond Rating Service withdraw its rating as well. The ratings agency will continue to rate the company based solely on publicly available information, IndyMac said.
The lender in early December said it was exploring a "variety of capital-raising alternatives," including
a possible deeper cut to its dividend. It had slashed its dividend in half to 25 cents in September, amid the deteriorating mortgage market.
IndyMac also said it expected to report a fourth-quarter loss. The lender is expected to report results Feb. 12.
recently agreed to be acquired by
Bank of America
for $4 billion, as its share price plummeted amid mounting capital concerns.
IndyMac shares were up 6.9% to $4.66 in early trading.