Tuesday, November 6, 2007

IndyMac Posts Loss, Morgan Stanley Writedown May Loom (Update1)

By Erik Holm


Nov. 6 (Bloomberg) -- IndyMac Bancorp Inc. posted its first loss in more than eight years and analysts predicted more writedowns at Morgan Stanley, Wachovia Corp. and Bank of America Corp. after markets for some mortgage assets came to a standstill.

IndyMac, the second-largest independent U.S. mortgage lender, lost $202.7 million in the third quarter, five times bigger than the Pasadena, California-based company predicted. Capital One Financial Corp., which shut GreenPoint Mortgage in August, raised its 2008 forecast for the cost of bad debts tied to home loans and credit cards.

Lenders are getting stuck with more losses as the worst U.S. housing slump in 16 years fuels record foreclosures. The turmoil forced more than 100 companies this year to quit the business or seek buyers, and felled chief executive officers at Citigroup Inc., the biggest U.S. bank, UBS AG, Europe's biggest bank, and Merrill Lynch & Co., the world's biggest brokerage.

``We are in the midst of the most severe downturn our industry has experienced in modern times,'' Chief Executive Officer Michael Perry in a statement today. The company said it has cut more than 1,500 jobs.

Prices paid by investors for mortgages and related securities that don't carry implicit government backing have collapsed amid rising concern about foreclosures, which set a record in the second quarter, and overdue payments on subprime loans, which set a five-year high. IndyMac's profit depended in part on selling mortgages it originated, ``and this business model disappeared virtually overnight,'' Perry said.

Morgan's Outlook

Morgan Stanley, based in New York and the second-biggest U.S. securities firm, may write down $6 billion on the value of mortgages and related securities, Fox-Pitt Kelton analyst David Trone said in a note to clients.

``We suggest an outright avoidance until either management discloses more specific exposure data and it proves smaller than we thought, or they actually take writedowns big enough to get beyond this,'' Trone wrote.

Citigroup already said securities it holds may have lost $11 billion of value and Merrill Lynch wrote down $8.4 billion. Both are based in New York. Citigroup may have to write down an additional $2.7 billion of subprime mortgage-backed and related securities, CreditSights Inc. said today.

Citigroup named Richard Stuckey, 51, to manage most of its $43 billion of subprime mortgage assets, the same executive who helped unwind hedge fund Long-Term Capital Management LP's bad bets nine years ago.

Follow the Leader

Bank of America and Wachovia, both based in Charlotte, North Carolina, may be forced to write down more mortgage-related assets in the fourth quarter, Friedman Billings Ramsey Group Inc. analyst Gary Townsend told investors.

``We are motivated to make this move in part because of the experience of Citigroup,'' Townsend said in his report on Bank of America, ranked second by assets. Wachovia ranks fourth and New York-based JPMorgan Chase & Co. is third. Townsend rates Bank of America ``outperform'' and Wachovia ``market perform.''

Capital One's charge-offs may range from $4.9 billion to ``the mid $5 billions,'' the McLean, Virginia-based company said in a regulatory filing. That's an increase from the previous forecast of $4.9 billion.

Spokesmen for Morgan Stanley, Bank of America and Wachovia didn't comment on the analysts' reports.

IndyMac fell 2.2 percent to $12.49 at 4:02 p.m. in New York Stock Exchange composite trading. Morgan Stanley declined 1.9 percent, Citigroup dropped 2.3 percent and Merrill Lynch rose 0.9 percent. Bank of America rose 2.5 percent, Wachovia added 3 percent and Capital One lost 1.8 percent.

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