IndyMac: 'Don't Label Us a Sub-Prime Lender'

Shares of Large Cap Watch List member IndyMac Bancorp (NDE) are higher by 4% this morning after the company issued a press release with the following update:

IndyMac Bank - Investor Relations - Press Release

Indymac’s exposure to subprime mortgages is small, and the Company’s credit performance statistics are reflective of prime/Alt-A mortgage lending.Indymac has been inappropriately categorized by many media sources as a subprime lender, and we wish to clarify our position as predominantly a prime/Alt-A lender with the following facts:

1. Based on the definition of subprime established by the Office of Thrift Supervision (OTS) for our regulatory filings, only 3.0 percent of Indymac’s $90 billion in mortgage loan production in 2006 was subprime.

2. Indymac’s asset-backed securitizations (ABS) classified as subprime total $6.8 billion(1) and represent only 4.4 percent of our total $156 billion portfolio of loans serviced as of December 31, 2006.

3. We do not rank among the top 25 subprime lenders in the country in any current industry survey, nor are we part of the ABX Index of the top 20 subprime issuers.

4. Subprime mortgages generally include those loans where the borrower’s FICO score is 620 or below. In contrast the averageFICO score on Indymac’s 2006 loan production was 701.

Of course, one can forgive the confusion with the shares down by a third since the beginning of the year and the company having to frequently cut its guidance, as we reported two weeks ago:

According to an Associated Press article:

In January, the company forecast 2007 earnings at about $4.15 per share. At the time Wall Street was looking for profit of more than $5 per share, but analysts have since revised their estimates and now expect, on average, profit of $4.32 per share.

IndyMac did not specify a per-share earnings target on Thursday.

But that is not quite true. The 10-15% ROE range, applied to IndyMac’s $2.0 billion in equity, implies a net income range between $200 and $300 million, or roughly $2.75 - $4.00 per share.

So be it prime, subprime or what have you, it seems fair to call this company (and its shareholders) “suffering.”

NDE 1-yr chart:

Comments

[scott146]

No question that IndyMac's earnings will be down, since the demand for loans is sinking. Still, it's always nice to be able to issue a clarifying press release like theirs. Thanks for the info.