Ouch baby, nothing like the metal chair over the back! It seems like the market has a sleeper hold on the parent company of Financial Freedom, IndyMac Bank posted a loss of $184.2 million, or $2.27 per share, for the quarter ended March 31. In the same period last year, it earned $52.4 million, or 70 cents per share. The Bank said it wouldn’t have a profitable quarter in 2008 and doesn’t expect to make any profits until home prices stop falling. The percentage of loans at least 30 days past due rose to 8.3%, up from 5.4% from a year earlier and announced that its going to stop paying the dividend on its preferred shares. IndyMac attributed much of the losses to severance payments and costs associated with closing offices and discontinuing business. The rest of the MD&A discusses it’s migration to a GSE originator but everyone knows that its pretty hard to make a good buck originating agency eligible paper and retaining the servicing.

After reading the 10-Q filed, the glaring concern is one of (“core”) capital which fell to 5.74% compared to the 5% required to maintain “well capitalized” standard at the thrift level, and risk-based capital fell to 10.26% compared to 10% required to maintain “well capitalized.” Indymac announced a number of capital initiatives to attempt to address its capital position:

• An informal agreement with its regulator, the OTS, to increase its core capital level to 7% and its risk-based capital to 11%.
• IMB suspended its payments on holding company trust preferred and bank level preferred stock (TRUP dropped 32% on Monday).
• IMB raised $39 million of capital through its Direct Stock Purchase Plan in the first quarter and $58 million through this plan in the second quarter to date. (IMB is raising capital everyday according to the 10Q)

The holding company of IMB down-streamed $88 million of capital to the subsidiary bank in the first quarter, allowing the bank to remain “well capitalized.” It’s a matter of not if, but when something happens here that will dramatically alter the face of IndyMac. Could IndyMac fail? Possibly, not likely. I’d expect that IndyMac is either sold, recapitalized by a foreign investor or it sells good old Financial Freedom. As much as IMB won’t come out and admit it, I am sure that the OTS is all over them considering the amount of “non”-prime/Alt-A loans that it still carries on its books in one fashion or another. For those of you who put the short position on IMB awhile back (ahem, DM – I was right), it might be time to put your profits in your pocket. It looks like the Undertaker maybe on the top rope looking to put IMB down for the count.

IndyMac Bancorp Reports First Quarter Loss of $184.2 Million, ($2.27) Per Share

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