Breaking news: IndyMac slashing workforce, no longer accepting most loan applications
There's some breaking news out of IndyMac Bancorp this evening. A few excerpts:
-- On raising capital: "As we stated in our financial update on May 12, 2008, we have been working with our investment bankers to raise additional capital. To-date, we have not been successful with these efforts, and, while we will continue these efforts with our bankers and others, we don’t expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets."
-- On potential losses: "Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters."
-- On the institution's capital status: "In light of the current environment and related deterioration of our financial position since last quarter, we have been working closely with our federal banking regulators with respect to the actions that they and we must take to meet our mutual goal of keeping Indymac safe and sound through this crisis period. In that respect, based on information we have provided to our regulators, they have advised us that we are no longer “well capitalized”, which we stated on May 12 was a possible scenario."
-- On what IndyMac has to do to improve its ratios, given the awful market environment for mortgage assets: "Without an external capital raise, the traditional way to improve safety and soundness is to sell assets and shrink the balance sheet, which in normal times generally has the effect of improving capital ratios and bolstering liquidity. Yet in this environment, where either there are no bids for most of IMB’s mortgage loans and securities or the bid/ask spreads are abnormally wide, “fire-selling” assets would actually deplete capital further. As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset (which, as discussed in previous communications, is up against the regulatory cap limit), is to curtail most new loan production."
-- On how IndyMac will wind down originations: "As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and “feed” growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital."
-- On the scope of job cuts: "Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months, which should reduce our operating expenses by roughly 60%."
IndyMac is a fairly large troubled mortgage lender/thrift, with total assets of $33 billion at the end of 2007. It was the largest originator of Alt-A loans as recently as Q3 '07, according to National Mortgage News, and its total production volume last year was $77 billion (making IMB the country's ninth-largest residential mortgage originator). Its savings and loan, IndyMac Bank, FSB, is the 7th largest in the country.
How does IMB compare to other notable casualties? Well so far, New Century Financial was one of the biggest mortgage companies to collapse/stop lending as part of the mortgage crisis. It originated $59.8 billion in mortgage loans in its last full year of production (2006). American Home Mortgage, which filed for bankruptcy in August of last year, wasn't far behind New Century, with $58.9 billion in originations for full-year 2006. So we're losing an originator that made 29% more loans than the last, large independent lender to fold. (Please note: IMB as an institution is not yet disappearing, failing, going bankrupt, etc. It is just shrinking its business dramatically. I am providing these figures and examples above to put its production/origination statistics in context).
IMB recently grabbed headlines after Senator Charles Schumer made public letters that he sent to federal regulators, asking them to more closely monitor IndyMac's activities. Per the Wall Street Journal, Schumer wrote that he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac or minimize the damage should such a failure occur."
-- On raising capital: "As we stated in our financial update on May 12, 2008, we have been working with our investment bankers to raise additional capital. To-date, we have not been successful with these efforts, and, while we will continue these efforts with our bankers and others, we don’t expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets."
-- On potential losses: "Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters."
-- On the institution's capital status: "In light of the current environment and related deterioration of our financial position since last quarter, we have been working closely with our federal banking regulators with respect to the actions that they and we must take to meet our mutual goal of keeping Indymac safe and sound through this crisis period. In that respect, based on information we have provided to our regulators, they have advised us that we are no longer “well capitalized”, which we stated on May 12 was a possible scenario."
-- On what IndyMac has to do to improve its ratios, given the awful market environment for mortgage assets: "Without an external capital raise, the traditional way to improve safety and soundness is to sell assets and shrink the balance sheet, which in normal times generally has the effect of improving capital ratios and bolstering liquidity. Yet in this environment, where either there are no bids for most of IMB’s mortgage loans and securities or the bid/ask spreads are abnormally wide, “fire-selling” assets would actually deplete capital further. As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset (which, as discussed in previous communications, is up against the regulatory cap limit), is to curtail most new loan production."
-- On how IndyMac will wind down originations: "As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and “feed” growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital."
-- On the scope of job cuts: "Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months, which should reduce our operating expenses by roughly 60%."
IndyMac is a fairly large troubled mortgage lender/thrift, with total assets of $33 billion at the end of 2007. It was the largest originator of Alt-A loans as recently as Q3 '07, according to National Mortgage News, and its total production volume last year was $77 billion (making IMB the country's ninth-largest residential mortgage originator). Its savings and loan, IndyMac Bank, FSB, is the 7th largest in the country.
How does IMB compare to other notable casualties? Well so far, New Century Financial was one of the biggest mortgage companies to collapse/stop lending as part of the mortgage crisis. It originated $59.8 billion in mortgage loans in its last full year of production (2006). American Home Mortgage, which filed for bankruptcy in August of last year, wasn't far behind New Century, with $58.9 billion in originations for full-year 2006. So we're losing an originator that made 29% more loans than the last, large independent lender to fold. (Please note: IMB as an institution is not yet disappearing, failing, going bankrupt, etc. It is just shrinking its business dramatically. I am providing these figures and examples above to put its production/origination statistics in context).
IMB recently grabbed headlines after Senator Charles Schumer made public letters that he sent to federal regulators, asking them to more closely monitor IndyMac's activities. Per the Wall Street Journal, Schumer wrote that he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac or minimize the damage should such a failure occur."
posted by Mike Larson at
4:23 PM
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