IndyMac Profit Crashes, Stock Soars

Updated from 9:29 a.m. EST

IndyMac Bancorp's(IMB Quote - Cramer on IMB - Stock Picks) CEO Michael Perry is willing to give up his job if that's what shareholders vote at the struggling mortgage company's next shareholder meeting.

Perry, in a letter to shareholders discussing the company's 2007 annual performance, said he takes "full responsibility" for the mistakes the Pasadena, Calif.-based lender made that caused it to post a full-year loss for 2007 -- the first in its 23-year history.

"I believe in accountability and let me assure you that no one has been held more accountable, financially, than I have," Perry said in the letter.

"Despite the mistakes that we made during this period, I am confident that I am the person most capable of leading IndyMac through this crisis period and rebuilding shareholder value, and I have the support of the management team, board of directors and our regulators," he said. "If you don't share this view, I respect and understand this, and you will have the opportunity to make a leadership change with your vote at IndyMac's shareholders meeting on May 1. If I am not re-elected to the board, I will respect the shareholders decision and resign my positions as chief executive officer of IndyMac and IndyMac Bank."

IndyMac shares surged as much as 21% on Tuesday, despite plunging earlier in the day after reporting the dismal quarterly and year-end financial results. Investors may have been reacting to a number of variables, ranging from Perry's possible resignation to his comments that he expected the firm to return to profitability this year -- sooner than expected. Analysts expect the company to post a loss of 13 cents a share in 2008.

Analyst Matthew Howlett of Fox Pitt Kelton says the rise in share price also could have to do with the fact that IndyMac's capital ratios improved last quarter.

The housing and mortgage lending environment have steadily worsened over the past year. Borrower delinquencies and defaults have significantly risen compared to a year earlier as home prices sink, while the secondary market remains virtually shut down as a result of investor fear of taking on risky mortgage-backed securities.

IndyMac, once a primarily Alt-A lender, posted a quarterly loss of $509.1 million, or $6.43 a share -- more than four times analysts' estimates.

Analysts on average had expected the company to post a loss of $1.57 a share, according to Thomson Financial.

For the full year, IndyMac posted a net loss of $614.8 million, or $8.28 a share.

The company has also suspended the cash dividend paid on common stock "indefinitely" as a result of the difficult market condition, IndyMac said.

"Consistent with nearly every other large financial institution in the mortgage lending and securitization business, as a result of the rapidly deteriorating housing and mortgage markets, we took major writedowns and established significant credit reserves and recognized a significant loss n the fourth quarter," Perry said in the lender's earnings release.

During the quarter, IndyMac set aside $863 million in the quarter for loan losses, credit marks-to-market for loans held for sale, provisions to the secondary market reserve for potential loan repurchases and writedowns on residual and non-investment grade securities and real estate-owned losses. IndyMac's total credit reserves at the end of the fourth quarter totaled $2.4 billion, up from $619 million a year earlier.

The company expects charge offs to increase substantially in 2008 over 2007, but believes that its credit reserves are sufficient to absorb them. IndyMac anticipates total credit provisions and costs in 2008 to be roughly $372 million, down from $1.45 billion in 2007.

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