No more home mortgages for the time being. The former number two originator of home mortgages in the United States, IndyMac Bancorp (NYSE: IMB), is shutting down its operations and laying off 3800 workers, more than half of its employees.By halting its prime business, IMB might as well have announced they have turned to stone, as it seems its financial situation is frozen for now. Last quarter it announced continued losses and changed its outlook from being profitable in the fourth quarter to seeing nothing but losses through 2008.
It is always difficult to discuss one's failings, but nothing has been worse than my suggestion that IndyMac might be a screaming buy last year. The stock is down 97%. The sad truth is it was a screaming sell and my worst call since I have been writing for BloggingStocks.com. That will be a separate story.
Today, IndyMac is trading down 47% to $0.37. It will have to restructure once again and will be submitting a survival plan to the FDIC. The current market cap is about $37 million, while its losses over the last twelve months exceed $600 million.
Many questions haunt the troubled financial institution. How much money could it hope to make without its primary business activity up and running? When would they be able to start lending again if at all?
Above and beyond its need of cash for operations, how much cash will be burned defending itself from major lawsuits? Will the government be forced to assign its assets to another lender and shut them down? Why did management make optimistic announcements while they were watching losses rise out of control?
One of my friends asked me last week if I thought IndyMac was worth a long-shot bet. At the time, it was trading around $0.80 and today it less than half that. I told him then that I have no idea. That is still true and with what I have witnessed the last six months, I don't think anyone else knows either.
Update: closing price $0.44, down -$0.27 ( -38.03%)
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of IMB.
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Reader Comments (Page 1 of 1)
7-11-2008 @ 9:36PM
GoBoilers said...
With the credit market recovery predicated on the precarious balance derived from Federal Reserve liquidity injections, capital infusions by sovereign wealth funds and investment managers, and bailouts of major financial institutions, one must wonder if this period of stability has legs. Prior fits of turbulence in late summer 2007 and March 2008 led to dramatic market seizures that froze access to capital, eroded confidence in counterparties, and led to the demise of two dominant financial institutions. The current credit market predicament is the result of years of overabundant liquidity and exorbitant hubris among Wall Street bankers that led to an inexplicable decoupling of risk and return. Begrudgingly, market participants are revaluing deflated assets as the extent of credit impairment in the financial system continues to be exposed