IndyMac Swings to Net Loss
On Increased Loan Provisions

IndyMac Bancorp Inc. swung to a fourth-quarter loss as the home lender took large write-downs and set aside more money for possible loan losses.

The holding company for IndyMac Bank also reported its first annual loss in its 23-year history, leading the company to suspend its dividend on common shares as it attempts to ride out the mortgage crunch. Faced with continuing liquidity problems, IndyMac decided to suspend its quarterly dividend on common shares indefinitely.

The company's stock fell 10% in recent premarket activity, to $6.85.

IndyMac reported a fourth-quarter net loss of $509.1 million, or $6.43 a share, compared with year-earlier net income of $72.2 million, or 97 cents a share.

In December, IndyMac projected it would record a fourth-quarter loss due to the eroding subprime credit market, declining home sales and prices, and rising delinquencies and foreclosures that contributed to its third-quarter net loss.

The firm didn't disclose its fourth-quarter revenue figures in its press release.

The mean estimates of analysts polled by Thomson Financial were for a loss of $1.57 a share.

For the full year, IndyMac reported a net loss of $614.8 million, or $8.28 a share, Indymac's first annual loss in its history, compared with net earnings of $342.9 million, or $4.82 a share, the year before.

The company took $863 million in total pretax credit provisions and costs, increasing its credit reserve for future losses by 71% to $2.4 billion as of Dec. 31 -- quadrupling its prior-year credit reserves.

Charge-offs surged to $179 million from $7.6 million. Excluding non-investment grade and residual securities, charge-offs were $99 million.

The company sold $13.42 billion in loans during the quarter, while its net interest margin -- a measure of the difference between a bank's borrowing costs and lending rates -- rose to 1.8% from 1.64%.

"2007 was a terrible year for our industry, for Indymac and for you, our owners," Chairman and Chief Executive Michael W. Perry said Tuesday in his annual letter to shareholders. He called the current downturn the fourth-worst by length, "and many now predict that, before it turns around, it is going to be the longest and deepest since the Great Depression."

Mr. Perry noted that more than 225 independent mortgage companies have failed and that more than 100,000 jobs have been lost in the industry as a result of the credit crunch. He wrote, "All home lenders, including Indymac, were a part of the problem, and, as Indymac's CEO, I take full responsibility for the mistakes that we made."

But he said home lenders and mortgage brokers weren't the only ones responsible, adding that "systemic problems" and the government's "over-stimulation of the housing market" also played a role. "Indymac and most home lenders were not "greedy and stupid," " he said.

IndyMac was long considered a specialist in so-called Alt-A loans, a category between prime and subprime that often involves borrowers who don't fully document their income or assets. Amid a surge in defaults, however, investors stopped wanting to buy such loans.

In response, IndyMac said in September that it substantially cut back on loans that didn't comply with standards set by U.S. government-sponsored entities Fannie Mae and Freddie Mac. That was followed by a December announcement that the company was exploring capital-raising alternatives and could not say when it would return to profitability, and a January announcement that it was cutting its global work force by 24%.

IndyMac projected profit of about $13 million in 2008, including restructuring charges. Analysts' latest mean estimates were for a loss of 13 cents a share.

"Even if we are wrong in our forecast for 2008, and the mortgage and housing markets worsen beyond what we are already forecasting...which could happen given our experience in 2007...we have the capital...to absorb nearly triple our presently forecasted 2008 credit costs and fight our way through until the housing and mortgage markets do stabilize," Mr. Perry said.

IndyMac said it expects charge-offs to increase "substantially" in 2008 over 2007, but that the credit reserves it built up are sufficient to absorb them. The firm expects total credit provisions and costs for 2008 to be about $372 million, down from $1.45 billion in 2007. IndyMac projects that difference "will have a significant positive impact on our drive to return Indymac to profitability in 2008."

Email your comments to rjeditor@dowjones.com.