Indymac Hits a Wall, Quits Most Mortgage Origination
The nation's largest independent mortgage operation in the wake of Countrywide Financial's acquisition by Bank of America Corp. (BAC) lasted less than a week. It may never had a chance, either, given the headwinds that coalesced against it in recent weeks. Troubled thrift Indymac Bancorp Inc. (IMB) bowed to market and regulator pressure Monday afternoon, saying that it would cease most of its origination activity and lay off nearly 4,000 employees, as efforts to raise fresh capital failed and banking regulators advised the Pasadena, Calif.-based thrift that it had fallen below levels considered "well capitalized." CEO Michael Perry, his prior defiant tone now gone, said that the bank now faces a damned if you do, damned if you don't conundrum -- hardly the sort of talk that inspires investor confidence. "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," he wrote in a letter to investors that was posted on the company's corporate blog Monday afternoon. "We don’t expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets." Selling assets -- another typical tactic used to shrink a balance sheet -- isn't an option, either. "There are no bids for most of IMB’s mortgage loans and securities or the bid/ask spreads are abnormally wide," Perry said. Which means that the bank had little choice but to immediately cease nearly all mortgage lending activities, with the exception of the bank's "servicing retention" channel -- in other words, loans made during loss mitigation activities. The bank will continue to originate reverse mortgages via its Financial Freedom subsidiary, it said. The move will cost some 3,800 employees their jobs, Indymac said. The company will retain about 1,100 employees in loan servicing in Kalamazoo, Michigan and Austin; 350 in a servicing retention group in Irvine, Calif. and Kansas City; 800 at Financial Freedom, primarily in Irvine, Sacramento, and Atlanta; 400 in the company's Southern California retail and web banking operations; and 500 in portfolio management and administration, largely in Pasadena. Perry said he would also take a 50 percent pay cut, citing the company's current financial position. "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," he said. Underscoring the dire financial condition of the bank, Perry said the firm was also changing its severance policies for affected workers -- those with less than 5 years of service to the company would likely receive only 30 days notice of termination; only those with more than 5 years of service would receive a minimum $20,000 severance. None would receive company-paid COBRA coverage. Previously, the company offered one month of pay and one month of company-paid COBRA insurance coverage for each year of service. Scrutiny over Indymac's future reached a fever pitch in recent weeks, as a leaked letter from Senator Charles Schumer (D-NY) Thursday afternoon, sent to federal regulators, questioned the financial health of the bank amid a mortgage mess that has yet to show signs of repair. Regulators called the leak "reckless and irresponsible." For its part, the bank did not comment on whether the Schumer leak led it to its current financial condition, or if it had already been there prior to the letter's release. Disclosure: The author held no positions in BAC or IMB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.