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THE MORTGAGE MELTDOWN

Analysts have zero hopes for IndyMac

Two of them see no shareholder value in the Pasadena S&L.

July 09, 2008|E. Scott Reckard and Andrea Chang | Times Staff Writers

A day after IndyMac Bancorp's decision to sharply curb its lending and lay off 3,800 employees, the mortgage company's shares tumbled toward oblivion Tuesday, with at least two analysts warning that no value remained for shareholders.

IndyMac, which specialized during the housing boom in loans for borrowers who didn't document their incomes, has been inundated by defaults.

It announced after the stock market closed Monday that regulators no longer considered it well capitalized. It said it would shut all home lending except for reverse mortgages, which help older people access their home equity, and refinancings for current customers.

The lender's stock sank 27 cents, or 38%, on Tuesday to 44 cents. The shares peaked at $50.11 in 2006.

Hope, however, emerged Tuesday for some of the IndyMac employees heading for joblessness.

Prospect Mortgage Co., a 2-year-old company backed by Chicago private equity firm Sterling Partners, said it would take over 60 to 75 of the Pasadena savings and loan's retail offices, putting about 750 IndyMac employees on its payroll.

The deal's terms weren't disclosed, but it wasn't expected to generate significant cash for IndyMac.

Earlier Tuesday, Paul Miller, an analyst at Friedman, Billings, Ramsey & Co., cut his price forecast for IndyMac stock from $1 to zero, citing the thrift's statement that it had failed in an effort to raise new capital.

"Next Stop, Receivership," was the headline on a note from Jason Arnold, an analyst at RBC Capital Markets who also reduced his price target to zero, from $1.50.

IndyMac "will not survive without a material capital injection," Arnold wrote, calling the prospect of one unlikely because regulatory restrictions and mounting losses had left IndyMac's business model "arguably in shambles."

"We think IndyMac is painted into a corner and can't get out," he said in an interview.

IndyMac, which operates under a federal savings and loan charter, declined to comment on analysts' bleak projections for the company.

The lender's stock has been suspended from trading on the New York Stock Exchange floor since June 26, when it first closed below $1, and is trading instead on the NYSE's all-electronic ARCA market.

The exchange can permanently delist a company if the average trading price of its shares over 30 days falls below $1. Such low-priced stocks normally end up in the over-the-counter market, where they're generally of interest only to hard-core speculators and day traders.

Most of the IndyMac branches being acquired by Northbrook, Ill.-based Prospect are former offices of American Home Mortgage Investment Corp. of Melville, N.Y., another casualty of the meltdown in home loans, which filed for bankruptcy protection in August.

The locations of the offices weren't disclosed.

IndyMac had taken over the leases on about 90 American Home Mortgage offices and kept its employees on as part of a push to diversify into direct-to-consumer loans from its traditional business of loans made through independent brokers.

In a regulatory filing Tuesday, IndyMac repeated its earlier statements that depositors had been withdrawing funds at an "elevated" pace since late last month, when Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, publicly questioned its ability to survive.

But several offices visited Tuesday were calm.

At the Arcadia branch, Joseph Gadoury, 43, said he had one account left with IndyMac after liquidating about $60,000 in certificates of deposit last week. He said he had shut the CD accounts after seeing dozens of anxious customers withdrawing their money.

"If the Great Depression looked like something, it's got to look like what I saw that day," said Gadoury, who manages a computer parts business. "It was a terrible sight."

Others weren't as concerned. Corey Pekerol, 32, said he was adding $20,000 to his savings account at the Arcadia branch, saying he believed the federal government would come to IndyMac's aid.

"If I didn't have confidence it was going to be there, I probably wouldn't do it," said Pekerol, a general contractor from Monrovia.

Robert Leach, 53, who stopped by the Duarte branch in the afternoon, said he was considering closing his CD and money market accounts because "I'm nervous."

"How difficult is it going to be to get my money if they shut down? I don't want to jump through too many hoops," said Leach, a high school teacher from Azusa.

A number of IndyMac depositors have expressed similar concerns in recent weeks. But the Federal Deposit Insurance Corp., which becomes the receiver for failed banks and thrifts, said it generally can find another institution to take over deposits in such cases, so depositors wind up with the same account at a different bank without losing access to their funds.

If the deposits aren't transferred to another bank, the FDIC says, it generally is able to issue checks for insured deposits within a business day or two.

It insures up to $100,000 per depositor plus $250,000 per retirement account. IndyMac said it could help depositors structure their accounts so they were 100% insured. The FDIC's toll-free information line is (877) ASK-FDIC.

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scott.reckard@latimes.com

andrea.chang@latimes.com

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Times staff writer Tom Petruno contributed to this report.

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