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IndyMac Swings to Third Quarter Loss

IndyMac Bancorp announced third quarter earnings Tuesday, posting a net loss of $202.7 million, or $2.77 a share, compared with net income of $86.2 million, or $1.19 per share a year ago.

The loss was more than five times larger than what IndyMac had projected two months ago, and well above the average analyst’s predicted loss of 46 cents.

“We are clearly disappointed with this quarter’s results, which were driven by deteriorating mortgage delinquencies and a declining housing market combined with an unprecedented collapse in the secondary market,” said IndyMac Chief Executive Mike Perry.

IndyMac increased credit reserves by $441 million, or 47 percent, in the third quarter to a sizable $1.39 billion, while charge-offs rose to $146 million in the quarter.

Nonperforming assets, or bad loans which could result in more charge-offs rose to 2.46 percent of total assets, up sharply from 0.51 percent a year earlier.

The result also includes $407.7 million in pretax credit costs and a $167.2 million pretax loss on the sale of loans and mortgage-backed securities.

Mortgage loan origination in the third quarter was down a hefty 30% to $16.82 billion.

IndyMac, which was predominantly an Alt-A lender, cut most of their higher-risk loan programs during the quarter, including piggyback mortgages and 100% financing, while shifting focus to agency-backed loans that could be sold to Fannie and Freddie.

Unfortunately, a move to agency-backed, conforming loan production raises the question of whether IndyMac can remain profitable with a reduced product line.

IndyMac has already cut roughly 10 percent of its work force, or 1,000 employees, with more losses expected if loan production continues to slow.

The thrift also warned that it would cut its dividend if it’s not profitable in the fourth quarter.

“While we are declaring and paying the dividend this quarter, and intend to pay a dividend in normal times, a significant cut would be prudent and warranted if we are not profitable” in the fourth quarter, said Perry in a statement.

On a positive note, the Pasadena-based thrift said it had $4.9 billion of operating liquidity as of September 30th, an all-time high for the company.

“We are not down and out,” said Perry, who expects the company to be “solidly profitable” in the fourth quarter and expressed that future quarterly losses would be “substantially lower” than the third-quarter loss.

Perry expects the company’s mortgage production unit to be profitable in the fourth quarter, “excluding credit costs from discontinued products and start-up costs from our retail-lending initiative.”

The loan pipeline was up to $9.8 billion as of October 31 from a low of $7.4 billion in September, while October rate locks of $8 billion marked a 51 percent rise from September.

IndyMac, much like Countrywide and many other banks, has shifted its lending focus to the less-risky retail circuit after wholesale lending fell out of fashion over the summer.

Despite recent layoffs, the company has hired over 1,400 “professionals” and opened more than 100 offices during the third quarter in its bid to take over the retail space.

Shares of IndyMac were up $1.23, or 9.63 percent to $14.00 in midday trading on Wall Street, still well below the 52-week high of $48.14.

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