Standard & Poor’s cut IndyMac Bancorp’s credit rating to “junk” status Tuesday, noting that the stressed mortgage lender will likely suffer more losses given current market conditions.
The credit rating agency reduced the Pasadena-based mortgage lender’s rating to non-investment grade “BB+/B” from investment grade “BBB-/A-3” and set its outlook to negative.
That leaves about a one-in-three chance of the S&P cutting the company’s credit rating again in the next two years.
“This action was taken in response to concerns about IndyMac’s exposure to deteriorating housing markets and the effect credit losses will have on capital levels,” S&P credit analyst Robert B. Hoban Jr. said in a statement.
“We currently consider capital to be adequate, but additional losses could make capital a primary concern.”
The agency said IndyMac could see more bad loans and additional quarterly losses, and if profits remain soft, reduced capital could affect its ability to cope with high credit losses.
IndyMac is especially susceptible to losses because a large percentage of its loans were originated towards the end of the housing boom and in California, the S&P said.
Shares of IndyMac Bancorp fell 82 cents, or 9.73%, to close at $7.61 in trading Tuesday on Wall Street, far below their 52-week high of $46.50.
IndyMac, which now has a market cap of just over $612 million, has seen its share price fall more than 83 percent this year.