tumbled more than 6% Thursday morning after it said it expects to record a loss for the fourth quarter and may further cut its dividend in order to raise capital.
The Pasadena, Calif.-based lender, which had specialized in riskier so-called Alt-A loans, said it was considering a "variety of capital-raising alternatives." Options include a dividend cut, the sale of convertible debt or a preferred offering that is privately placed with one or more investors, or shrinking the balance sheet, according to a
Securities and Exchange Commission
The filing and response were made in conjunction with a shareholder suggestion on IndyMac's blog that the company should buy back shares as a way to "send an even stronger message, not just about the viability of
IndyMac but about how it feels about itself as a sound investment."
IndyMac's "business model is in the eye of this storm," CEO Michael Perry said in the filing. "Our business model is solely focused on financing USA homes, and we sell most of our loans into the secondary market (and not only is the private secondary market virtually closed ... now the
government sponsored entities have their own issues and are raising rates and cutting product guidelines)."
"In this environment ... maintaining strong capital and liquidity levels is paramount," Perry said.
As a result of declining home sales, rising delinquencies and the freezing of the secondary market, the lender now expects to post a net loss in the fourth quarter, but "likely a significantly reduced one in relation" to the third quarter, Perry said in the filing. He added that the company is likely to record losses for the first and second quarters of next year, as well.
Analysts on average, according to Thomson Financial, expect the company to post a loss of 26 cents a share in the December-ending quarter.
IndyMac's pessimistic outlook comes as the mortgage environment steadily worsens, even from what seemed to be disastrous conditions this summer. Delinquencies and defaults have significantly risen compared to a year earlier, the secondary market has shut down as a result of investor fear of taking on risky mortgage-backed securities, but now problems may further emerge within the government-sponsored enterprises,
, however, has been the hardest hit among the big mortgage lenders. Its stock has lost around two-thirds of its value this year due to mortgage industry deterioration. The company has been struggling to find funding to originate mortgage loans as the credit crunch intensifies.
Shares of IndyMac also have lost around 80% this year. In the third quarter, IndyMac posted a loss of $202.7 million, or $2.77 a share -- a deficit six times as big as analysts were expecting. Revenue plummeted to a negative $42.3 million from $346 million in the comparable period last year.
The lender had warned in early September that it was firing 10% of its staff and slashing its dividend in half to 25 cents a share. The company had said at the time that it expected to post a third-quarter loss of as much as 50 cents a share.
The company had warned in November that it could cut its dividend further if it were not profitable in the fourth quarter.
"Hopefully if all goes well, we can return to modest profitability sometime in the second half of 2008," Perry said. Despite an expected loss for the fourth quarter, "we expect our capital and liquidity levels at 12/31/07 to be strong and roughly the same as at 9/30/07."
Shares most recently dropped 55 cents to $8.20.