Fitch Ratings cut its core credit ratings on IndyMac Bancorp Inc. (IMB) for the second time this year late Tuesday, moving the troubled lender further into junk territory over concerns about the bank's "ability to manage capital." The cut comes as analysts unloaded on the Pasadena, Calif.-based thrift yesterday, suggesting that it would need to raise substantial capital to remain solvent. Fitch said it had cut its long-term debt rating to B- from a previous BB, while short-term debt was cut to C from a previous B rating -- all ratings, both previous and new, are considered speculative-grade by the rating agency. IndyMac posted a $184.2 million first quarter loss earlier in the week, and said that it likely wouldn't post a profit until 2009; the bank also suspended dividend payments and deferred interest payments on its trust preferred securities in a move designed to preserve capital. "While Fitch believes the company's election to defer dividends and preserve capital was prudent, the deferral period, absent a meaningful capital raise, may not be temporary," Fitch analysts said in a press statement. All about capital Fitch's suggesting that IndyMac may need capital was echoed by a score of analysts earlier on Tuesday, including Friedman, Billings and Ramsey analyst Paul Miller, who cut his price target on the lender from $3 to $1 per share. Via Reuters:
Miller, who rates the stock "underperform," said that with an estimated capital cushion of just $107 million, which includes stock issued to date, IndyMac would struggle with losses of over $200 million through year-end. "Our primary concern is that IndyMac has minimal capital cushion, but losses will continue at least through year-end," Miller wrote. "IndyMac needs to raise additional capital - the question is not if, but how much and at what cost."
IndyMac is set to become the nation's largest independent lender, once Bank of America Corp. (BAC) completes its contemplated purchase of Countrywide Financial Corp. (CFC). That transaction is expected to close sometime in the third quarter. Perry had earlier suggested to investors ahead of the earnings report that the bank had "turned a corner." Disclosure: The author was long CFC, and held not other relevant positions, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.