IndyMac Bancorp Inc, one of the largest independent U.S. mortgage lenders, plans to cut 1,000 jobs and halve its dividend, and may report a third-quarter loss, as loan volumes decline and credit markets remain tight.
The job cuts amount to 10 percent of the work force and will be made over the next few months, as lending volume falls by half and IndyMac emphasizes higher-quality loans, Chief Executive Michael Perry said at an investor presentation on Friday.
Our production business has clearly sustained damage, Perry said.
IndyMac is struggling with illiquidity in the secondary market, including panic in some areas, he said.
IndyMac announced the cuts after building a 1,500-person retail mortgage operation nearly from scratch earlier this year, largely through hiring former staff from weak or failed rivals.
Pasadena, California-based IndyMac joined Countrywide Financial Corp, Lehman Brothers Holdings Inc and National City Corp in announcing a total of 4,050 mortgage-related job cuts over the last three days.
Dozens of mortgage lenders have reduced loan volumes and staff this year as defaults soared, home prices stagnated and investors stopped buying loans they no longer consider safe.
Perry will ask IndyMac's board to lower the quarterly common stock dividend to 25 cents per share from 50 cents. He said on July 31 that IndyMac could maintain the higher dividend, which equated to a 9 percent dividend yield, for several quarters.
The parent of IndyMac Bank, one of the nation's largest savings and loans, expects in the third quarter to post a loss of as much as $36.8 million, or 50 cents per share. A year earlier, it earned $86.2 million, or $1.19 per share.
Perry nevertheless expects IndyMac to be solidly profitable in the fourth quarter and in 2008, when it should outearn its lowered dividend on a per-share basis. He said further job cuts are possible, depending on how bad the mortgage cycle is.
IndyMac made $48.1 billion of mortgage loans from January to June, ranking ninth nationwide, according to the Inside Mortgage Finance newsletter.
IndyMac shares fell as much as 9.8 percent, but were up 83 cents, or 3.8 percent, at $22.49 by early afternoon on the New York Stock Exchange. They began the year at $45.16.
MISTAKES WERE MADE
IndyMac had long specialized in Alt-A loans that fall between prime and subprime in quality.
It has changed its business model to emphasize loans eligible for purchase by government-sponsored enterprises Fannie Mae and Freddie Mac, which investors consider safer. Countrywide, the largest mortgage lender, made a similar move.
We started this quarter as an Alt-A lender. We're finishing it as a GSE lender, Perry said.
Perry also said IndyMac is making no subprime loans, for people with weak credit, that Fannie Mae and Freddie Mac will not buy. It also stopped making piggyback second mortgages that can allow borrowers to pay essentially nothing down to buy homes.
Every lender made some mistakes in this credit cycle because the housing boom went on so long, Perry said. We got one thing very wrong, being involved in the piggyback loan area.
The retail push comes as IndyMac relies less on brokers to generate loan volume. Last month, IndyMac said it would hire about 800 former employees of bankrupt rival American Home Mortgage Investment Corp. It took on 440 workers in April when it bought New York Mortgage Co's retail business.
Analysts on average expected IndyMac to post a third- quarter profit of 45 cents per share, according to Reuters Estimates. Several analyst forecasts predated much of the recent U.S. credit market turmoil. Three earnings projections issued in the last 15 days on average called for a loss of 18 cents per share.
IndyMac expects to sell 74 percent of the loans it produces this quarter, down from the second quarter's 90 percent.