IndyMac Warns of Loss Despite Servicing Strength
IndyMac Bancorp's chairman and CEO, Michael Perry, has warned investors that the company may report a loss for the third quarter, citing high credit costs and weak secondary market conditions for the company's third-quarter problems.
In a letter to shareholders, Mr. Perry said that IndyMac expects to report third-quarter results between a range of "breakeven to a loss of $0.50 per share."
He noted that the problems caused by higher credit costs and spread widening in the secondary market have been recorded largely as unrealized fair value adjustments to assets as opposed to actual, realized losses on the sale of assets. As such, he said future gains could be realized on these assets if conditions improve.
He said that by refocusing loan originations on a "GSE-eligible model," IndyMac should be able to avoid the double impact of extraordinary spread widening and higher-than-normal credit costs in the future.
Despite IndyMac's troubles as of late (the company recently said it is trimming its workforce by about 1,000 positions, or about 10%), Mr. Perry defended IndyMac's business model and its risk management practices, noting that many companies have suffered worse fates than IndyMac in the current mortgage downturn. He said IndyMac balances its cyclical loan production business with its loan servicing operations and thrift portfolio.
"Had we not encountered the unprecedented spread widening that has driven our mortgage production segment to a loss this quarter, IndyMac would be reporting an overall profit for the quarter given the strong performance of our servicing segment and solid profitability from the thrift," he said.
Mr. Perry also said that while housing and mortgage market fundamentals "are much tougher today than they were in 1993 and 1998," IndyMac is better positioned to withstand a downturn than it was in those previous periods of liquidity challenges.
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