Indymac Issues Stakeholder Letter
07 Julio 2008 - 3:27PM
Business Wire
Indymac today issued the following letter to its stakeholders: Dear
Indymac Stakeholders: In this very difficult and challenging
environment, any of the actions that we take to keep Indymac safe
and sound unfortunately have negative consequences to some
important constituency. 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. While some shareholders may believe it is in their best
interests that we not raise capital right now given the significant
dilution that it would cause, there are consequences of not being
able to raise more capital and, therefore, actions that we now must
take. Given the continued downward trend in home prices and a
resulting increase in our forecasted credit losses and the related
downward trend in the pricing of all mortgage related assets in the
capital markets, especially mortgage-backed securities where we
have experienced significant rating agency downgrades this quarter,
we expect our loss for the second quarter to be larger than Q108,
but it is difficult at this time to be more precise given the
significant uncertainty surrounding accounting estimates, fair
value accounting and other accounting matters. In light of the
current environment and related deterioration of our financial
position since last quarter, we have been working closely with our
federal banking regulators with respect to the actions that they
and we must take to meet our mutual goal of keeping Indymac safe
and sound through this crisis period. In that respect, based on
information we have provided to our regulators, they have advised
us that we are no longer �well capitalized�, which we stated on May
12 was a possible scenario. Our regulators have also asked us to
submit to them a new business plan for their review and approval,
something on which we have been working with them for some time. We
have agreed on the basic elements of the plan, and the regulators
have directed us to begin executing on it. An important element of
our plan is to improve our capital ratios. Without an external
capital raise, the traditional way to improve safety and soundness
is to sell assets and shrink the balance sheet, which in normal
times generally has the effect of improving capital ratios and
bolstering liquidity. Yet in this environment, where either there
are no bids for most of IMB�s mortgage loans and securities or the
bid/ask spreads are abnormally wide, �fire-selling� assets would
actually deplete capital further. As a result, the most realistic
and cost-effective way to shrink both our balance sheet and our
servicing rights asset (which, as discussed in previous
communications, is up against the regulatory cap limit), is to
curtail most new loan production. In addition to needing to shrink
our assets to improve our capital ratios, we also need to do so to
ensure that we maintain prudent operating liquidity. A consequence
of falling below well-capitalized is that we are no longer
permitted to accept new brokered deposits or renew or roll over
existing ones, unless we get a waiver from the FDIC. While we have
submitted a waiver application, it is uncertain as to whether such
a waiver will be granted. As a result of the above, 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, except for our
servicing retention channel. We plan to honor all of our existing
rate-locked loans and will continue to fund these loans in the
coming weeks. While the managers and employees in these units have
worked incredibly hard, these units are not currently profitable
due to the continuing erosion of the housing and mortgage markets.
At the same time, these operations take up significant balance
sheet capacity and �feed� growth in the servicing asset, an asset
we need to shrink given its size relative to our existing capital.
In closing our forward mortgage business, we will refocus our
lending efforts on supporting and building within regulatory
constraints Financial Freedom, our reverse mortgage unit (FHA
production only), and on continuing the retention activities
associated with our servicing portfolio. Combined, we currently
expect these units to produce roughly $5 billion to $10 billion per
year of new FHA/GSE loans. Thus, our core business model will
include (1) Financial Freedom, one of the largest reverse mortgage
lenders in the Country; (2) a top ten mortgage loan servicing
operation, with a solid retention production unit; and (3) a
Southern California retail bank branch network, including 33
branches and roughly $18 billion in deposits, of which over 96% is
fully covered by FDIC insurance. In addition, when this housing and
mortgage crisis abates and we return to health, we would also hope
to be an investor in mortgage loans and mortgage-backed securities
and might re-enter the national forward mortgage production
business with a low-cost, non-commissioned-based business model.
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, which should reduce our
operating expenses by roughly 60%. We will retain about 1,100
employees in loan servicing in Kalamazoo and Austin; 350 in our
servicing retention group in Irvine and Kansas City; 800 at
Financial Freedom, primarily in Irvine, Sacramento, and Atlanta;
400 in our Southern California retail and web bank; 500 in
portfolio management and administration, largely in Pasadena; and
250 in discontinued businesses. In building Indymac up from 4
employees in 1993 to its present size, we have had to retrench and
then rebuild several times over the past 15 years, but clearly
these are the largest and most difficult staff reductions we have
ever had to make. If we had another alternative, we clearly would
have chosen it, as we understand how painful these workforce
reductions can be for the affected employees and their families.
Given Indymac�s current financial position and these significant
layoffs, I strongly believe it is appropriate that I further
materially reduce my own compensation. As a result, I have
requested of Indymac�s Board of Directors that they reduce my base
salary by 50%. With respect to severance, our policy has always
been that the fair and right thing to do is to provide our
departing employees with a generous severance program to ease their
transition to the next stage of their career. Our severance
program, which provided one month of pay and one month of
Indymac-paid COBRA insurance coverage for each year of service, was
clearly the most generous in the mortgage industry, if not among
most of the Fortune 500. I very much regret that the reality today,
however, is that we can no longer afford this program given our
need to preserve capital and return to profitability. Therefore, we
will be providing employees with a minimum 30-day notice of the
termination of their employment (effectively, 30 days severance),
with employees covered under the Federal WARN Act and similar state
statutes (�WARN�) receiving 60 days of advance notice prior to the
effective date of the their termination. Affected employees with
five or more years of service will receive a minimum $20,000
severance, including any compensation payments made during the
notice period. With all of the above said, in this environment
plans can change often and quickly (e.g. ability to raise capital
and/or liquidity, regulatory actions, etc.). All we can do is
continue to work hard and do our very best to keep Indymac safe and
sound, so that we can rebuild our workforce and shareholder value
when the housing and mortgage markets stabilize. We will be
providing more information on our plans and prospects when we
release Q208 earnings. Very truly yours, Michael W. Perry Chairman
and Chief Executive Officer About Indymac Bank IndyMac Bancorp,
Inc. (NYSE:IMB) (Indymac�) is the holding company for IndyMac Bank,
F.S.B. (Indymac Bank�), the 7th largest savings and loan in the
nation. Indymac Bank provides single-family home mortgage
financing, FDIC-insured banking products and through its Financial
Freedom subsidiary is one of the largest providers of reverse
mortgage loans to seniors. For more information about Indymac and
its affiliates, or to subscribe to the company's E-mail Alert
feature for notification of company news and events, please visit
http://about.indymacbank.com/investors. To visit Indymac�s
corporate blog, please visit http://www.theimbreport.com.
FORWARD-LOOKING STATEMENTS Certain statements contained in this
press release may be deemed to be forward-looking statements within
the meaning of the federal securities laws. Examples include our
forecasts relating to the second quarter 2008 losses and capital
ratio declines, our expectations about the inability to raise
capital in the near term, our ability to take the necessary actions
with our regulators to keep Indymac safe and sound, our ability to
honor and fund existing rate-locked loans, the expected long-term
viability of our revised business model,�our projections of a
return to profitability and strong capital levels, and our ability
to rebuild our workforce and shareholder value. Words such as
"anticipate," "believe," "estimate," "expect," "project," "plan,"
"forecast," "intend," "goal," "target," and similar expressions, as
well as future or conditional verbs, such as "will," "would,"
"should," "could," or "may," identify forward-looking statements
that are inherently subject to risks and uncertainties, many of
which cannot be predicted or quantified. Actual results and the
timing of certain events could differ materially from those
projected in or contemplated by the forward-looking statements due
to a number of factors, including: the effect of economic and
market conditions including, but not limited to, recent disruptions
in the housing and credit markets, including the level of housing
prices, industry volumes and margins; the level and volatility of
interest rates; Indymac's ability to down-size its business and
reduce costs expeditiously; Indymac's hedging strategies, hedge
effectiveness and overall asset and liability management; the
accuracy of subjective estimates used in determining the fair value
of financial assets of Indymac; the implementation of new
accounting pronouncements and guidance; the various credit risks
associated with our loans and other financial assets, including
increased credit losses due to downward trends in the economy and
the real estate market and increased delinquency rates of
borrowers; the adequacy of credit reserves and the assumptions
underlying them; the actions undertaken by both current and
potential new competitors; the availability of funds from Indymac's
lenders (in particular, Federal Home Loan Bank and the Federal
Reserve Bank), loan sales, securitizations, deposits and all other
sources used to fund reverse mortgage loan originations and
portfolio investments; and the execution of Indymac's business and
restructuring plans in a significant and turbulent market
transition. Additional risk factors include the impact of
disruptions triggered by natural disasters; pending or future
legislation, regulations and regulatory action, or litigation, and
factors described in the reports that Indymac files with the
Securities and Exchange Commission, including its Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, and its reports on Form
8-K. Indymac does not undertake to update or revise forward-looking
statements to reflect the impact�of circumstances for events that
arise after the date the forward-looking statements are made.
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