Mortgage Daily

Published On: February 18, 2005
IndyMac Stands Out

Exec rebuts comparisons with Accredited

February 18, 2005



In a letter to, an IndyMac Bank executive criticized a comparison with Accredited Home Lenders — noting that thrifts like IndyMac have always received significantly higher P/E multiples than mortgage banks and securitizers.

Pamela Marsh, an executive vice president of finance at IndyMac Bank, wrote the letter regarding previous coverage of FindProfit’s analysis of financial activity for various subprime lenders, which attributed a dive in the shares of nonprime lenders earlier this month to margin compressions and projected that subprime unwinding had just begun.

In her letter, Marsh noted that IndyMac, which reported record fourth quarter production of $11.2 billion, does participate in the subprime mortgage market, but such activity represents less than 13 percent of all its mortgage activities.’s article said FindProfit saw Accredited Home as “a ticking time bomb” because investors are more concerned with credit quality as rates rise, and the company’s returns from selling mortgage-backed securities would be curtailed, as well as those from the many own loans it buys and keeps on its balance sheet. FindProfit believed that while Accredited Home’s primary avenue for growth would increasingly be balance sheet expansion in the short term, this would be hard to sustain in the long run.

Based on FindProfit’s analysis, the article stated Wall Street does not value investment portfolio returns as much as origination/securitization profits due to the higher capital intensity involved, high degree of leverage, and exposure to defaults, which will rise as now generally young portfolios age.

While Accredited trades at just 6.75 times earnings, IndyMac is reportedly at a P/E Ratio of 13.44.

Marsh said, “Wall Street has always given thrifts like IndyMac Bank significantly higher price/earnings multiples than mortgage banks/securitizers, and we believe that this will continue to be the case for some time to come.”

Standard & Poor’s apparently agrees.

In its PowerPicks 2005 Portfolio, S&P named IndyMac among the 40 companies with the best ideas for the coming year.

“The 40 stocks in the S&P PowerPicks 2005 model portfolio are chosen from among the 1,500 U.S. stocks covered by Standard & Poor’s team of 65 U.S. equity analysts,” the ratings agency said in a December announcement. “Its objective is to exceed the total return, which includes capital appreciation plus dividends paid, generated by the S&P 500 Index during the year.”

FindProfit’s thesis is reportedly that “the heady mortgage market has begun its inevitable decline.” The investment publication has said that “subprime’s day of reckoning awaits, and it won’t be pretty.” Included in its list of “mortgage related shorts” is IndyMac and Accredited Home Lenders.

Late last month, when IndyMac reported higher-than-expected fourth quarter results, FindProfit said it admitted IndyMac’s “management has done a good job of gaining share in a shrinking market. Armed with good management, [IndyMac] may just be able to keep growing its way through this downturn…We plan to more closely review our [IndyMac] short position, as we are debating whether this is the optimum play for our thesis. At this point, we certainly favor establishing new short positions in Accredit Home Lenders over [IndyMac].”

In the analysis early February, FindProfit said IndyMac’s “management has nimbly managed itself through this minefield.”

IndyMac’s Marsh pointed out that although the company did report a drop in margins for its fourth quarter subprime activities, “It did post profits for the quarter that met or exceeded analyst expectations — not because our ‘management has nimbly managed itself through this minefield,’ but rather because our diversified business model has consistently delivered solid, predictable returns for our investors.”

The executive said the article compares the operating results of IndyMac, “a leading diversified thrift,” with Accredited, “a leading subprime mortgage banker,” which is “truly a case of apples and oranges.”

read letter from Pamela Marsh, Executive Vice President, Finance, IndyMac Bank


New Century Outlook Stuns Subprime Investors
Shares of subprime companies sank last week after New Century lowered its earnings outlook and warned that other players are operating below costs. And the market’s reaction to the announcement is just a precursor of things to come, according to one investment publication.

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