IndyMac posts meager gains
Saying the environment for mortgages has become a disaster, IndyMac Bancorp Inc. reported disappointing fourth-quarter earnings Thursday, slashed its profit forecast for 2007 and froze employee salaries -- actions that sent its stock into a tailspin.
Pasadena-based IndyMac, the fastest growing of the major U.S. mortgage lenders, earned $72.2 million on revenue of $319.5 million, up from $70.4 million on $281 million in revenue for the fourth quarter of 2005. But per-share earnings fell from $1.06 to 97 cents, well below the $1.35 IndyMac had forecast until last week.
IndyMac shares sank $2.99 to $37.71.
In a conference call, analysts such as Paul J. Miller Jr. of Friedman, Billings, Ramsey & Co. lambasted the company for waiting so long to disclose its worsening prospects.
Analysts surveyed by Thompson Financial had expected IndyMac to earn $4.30 to $5.95 a share in 2007, averaging $5.11.
IndyMac now projects just $4.15 a share because of factors including softer demand for mortgages, cutthroat competition, rising delinquencies and loan buyers’ demands for more protection against losses.
“It’s a disaster out there in the mortgage business right now,” IndyMac Chairman and Chief Executive Michael W. Perry said during the call with analysts.
IndyMac, which was the seventh-largest U.S. home lender last year, operates as a hybrid mortgage banking company and savings and loan, selling some mortgages, bundling others into securities and keeping some as investments.
Perry said IndyMac’s fundamental businesses remained sound even though 2007 was “going to be a challenging year.” In addition to freezing base salaries, Perry said, he has stopped hiring nonsales employees, plans to outsource 50% more jobs and will overhaul his forecasting methods.
Despite its slowdown, IndyMac has outperformed most competitors, Perry noted. For example, Washington Mutual Inc., the No. 3 mortgage lender, said last week that its mortgage unit posted a $122-million loss in the fourth quarter.
Perry said he was pleased with strong results from secondary businesses such as reverse mortgages and construction lending. He attributed the errant forecasts to certain managers with inadequate understanding of accounting rules but accepted responsibility and said, “We’re going to fix that.”
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