Tuesday, July 8, 2008
IndyMac Hits Bottom - Literally
For Michael W. Perry, Chairman and CEO of IndyMac BankCorp Inc. (NYSE: IMB), the hits just keep rolling in. The latest news is that Paul Miller, a Friedman, Billings, Ramsey & Co analyst, cut his price target for IndyMac to zero per share from $1.00.
Zero? He could at least have kept it 10 cents or so... Anyway, that solves at least one problem. IndyMac shareholders don't have to worry about how low the share is going to fall down to. Based on Miller's update, and the fact that Fitch ratings cut the long-term issuer default ratings for Indymac Bankcorp from B to CC and IndyMac Bank FSB from B to CCC, the stock just crashed 43.66% and went from $0.71 to $0.40. Not much to go before IndyMac hits bottom - literally.
For those wondering what this is all about, read the laundry list of IndyMac's problems here. Like I said in that post, this is following a by-now predictable pattern and Sen Schumer's letter was like a pinprick on a bloated baloon. The house of IndyMac just collapsed after that, with a near run on the bank, and then CEO Michael Perry sends a letter to stakeholders in which he reveals that federal banking regulators no longer consider IndyMac as 'well capitalized'. Excerpts below.
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.
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.
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.
Nothing much to say about the 2nd and 3rd points. So they won't be making any new loans and they're laying off half their workforce. That's what you do when you don't have money. Fine. Problem is the 1st point, where he categorically says there's no chance of raising any fresh capital.
Tote up all that, and what do you have? Assets are shrinking by the day, share price expected to be at zero pretty soon, facing multiple class-action lawsuits, and the one thing that could save IndyMac - An uptick in the real estate market - Is nowhere in sight, at least for a year or so. So they can't raise fresh capital, and they definitely won't be able to survive and wait for an upswing in the market.
Which, in theory, leaves two options - bankruptcy or a takeover. Again, like I said in the previous post about IndyMac, bankruptcy is not on the table. You can expect someone to step up and purchase IndyMac for around $2 to $2.5 per share. Even if no one else steps in, I'm pretty sure the 'federal banking regulators' will arrange for some sort of faux financing to help IndyMac stay afloat. Either way, there's nowhere to go but up. So, on second thoughts, hold on to that share certificate. The minute news leaks out about any sort of deal or federal help, Indymac's price will shoot up 10 times its current value.
Update 1: IndyMac Bank facing a continued run due to depositors withdrawing funds. But this time its a bit uncalled for, because 96% of IndyMac's $19 billion in remaining deposits is insured by the FDIC, so individual accounts with upto $100,000 are insured, joint accounts are insured for double that, and retirement accounts for $250,000. And, according to SEC filings, IndyMac still has an operating liquidity of about $1.7 billion. So note to IndyMac banking customers - If your deposits are within the insured limits, stop withdrawing your funds and give the Bank a chance to survive.
On a related note, further boosting IndyMac's liquidity situation is the sale of its 60 retail mortgage branches to Prospect Mortgage, based out of Northbrook, Illinois. This means that some 750 employees at these branches will now be off IndyMac's books. The sale amount was not disclosed.
And in a symbolic move, Chairman & CEO Michael W. Perry requested the IndyMac Board to reduce his base compensation by 50%, which the Board has agreed to, with effect from August 1 2008. Perry's Forbes profile says that his cash compensation was a cool 1 million dollars in 2007, with a 5 year total compensation of $42.23 million.
Zero? He could at least have kept it 10 cents or so... Anyway, that solves at least one problem. IndyMac shareholders don't have to worry about how low the share is going to fall down to. Based on Miller's update, and the fact that Fitch ratings cut the long-term issuer default ratings for Indymac Bankcorp from B to CC and IndyMac Bank FSB from B to CCC, the stock just crashed 43.66% and went from $0.71 to $0.40. Not much to go before IndyMac hits bottom - literally.
For those wondering what this is all about, read the laundry list of IndyMac's problems here. Like I said in that post, this is following a by-now predictable pattern and Sen Schumer's letter was like a pinprick on a bloated baloon. The house of IndyMac just collapsed after that, with a near run on the bank, and then CEO Michael Perry sends a letter to stakeholders in which he reveals that federal banking regulators no longer consider IndyMac as 'well capitalized'. Excerpts below.
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.
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.
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.
Nothing much to say about the 2nd and 3rd points. So they won't be making any new loans and they're laying off half their workforce. That's what you do when you don't have money. Fine. Problem is the 1st point, where he categorically says there's no chance of raising any fresh capital.
Tote up all that, and what do you have? Assets are shrinking by the day, share price expected to be at zero pretty soon, facing multiple class-action lawsuits, and the one thing that could save IndyMac - An uptick in the real estate market - Is nowhere in sight, at least for a year or so. So they can't raise fresh capital, and they definitely won't be able to survive and wait for an upswing in the market.
Which, in theory, leaves two options - bankruptcy or a takeover. Again, like I said in the previous post about IndyMac, bankruptcy is not on the table. You can expect someone to step up and purchase IndyMac for around $2 to $2.5 per share. Even if no one else steps in, I'm pretty sure the 'federal banking regulators' will arrange for some sort of faux financing to help IndyMac stay afloat. Either way, there's nowhere to go but up. So, on second thoughts, hold on to that share certificate. The minute news leaks out about any sort of deal or federal help, Indymac's price will shoot up 10 times its current value.
Update 1: IndyMac Bank facing a continued run due to depositors withdrawing funds. But this time its a bit uncalled for, because 96% of IndyMac's $19 billion in remaining deposits is insured by the FDIC, so individual accounts with upto $100,000 are insured, joint accounts are insured for double that, and retirement accounts for $250,000. And, according to SEC filings, IndyMac still has an operating liquidity of about $1.7 billion. So note to IndyMac banking customers - If your deposits are within the insured limits, stop withdrawing your funds and give the Bank a chance to survive.
On a related note, further boosting IndyMac's liquidity situation is the sale of its 60 retail mortgage branches to Prospect Mortgage, based out of Northbrook, Illinois. This means that some 750 employees at these branches will now be off IndyMac's books. The sale amount was not disclosed.
And in a symbolic move, Chairman & CEO Michael W. Perry requested the IndyMac Board to reduce his base compensation by 50%, which the Board has agreed to, with effect from August 1 2008. Perry's Forbes profile says that his cash compensation was a cool 1 million dollars in 2007, with a 5 year total compensation of $42.23 million.
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