Feb. 12 (Bloomberg) -- IndyMac Bancorp Inc., the second- biggest independent U.S. mortgage company, posted a record fourth-quarter loss. The shares rose after it said reserves are adequate even if defaults continue building at the recent pace.

The net loss was $509.1 million, or $6.43 a share, compared with a profit of $72.2 million, or 97 cents, in the same period a year earlier. The company's $2.4 billion in reserves will protect it should late payments and default rates continue at the fourth quarter's ``horrible'' rate, Chief Executive Officer Michael Perry said on a conference call with analysts.

After reporting the company's first annual loss in its 23- year history and suspending the dividend ``indefinitely,'' Perry is trying to return IndyMac to profitability by forgoing most home-equity loans and mortgages that don't qualify for sale to government-backed Fannie Mae and Freddie Mac. IndyMac has lost 80 percent of its market value in the past 12 months on concern it may not survive as a separate company.

``A forecast of profitability in 2008 looks optimistic,'' said Brian Horey, a general partner at Aurelian Partners LP, a New York-based investment firm that last year moved from betting against shares of subprime lenders to betting against companies focused on better credits, including IndyMac. ``The loans they originated in the last two years put them near the eye of the storm, and credit costs are likely to be an ongoing problem.''

IndyMac added 64 cents, or 8.4 percent, to $8.24 in composite trading today on the New York Stock Exchange. The stock fell as much as 10.5 percent and climbed as much as 21.2 percent during the session.

Analysts' Estimates

The Pasadena, California-based company was expected to have a loss of $1.57 a share, the average estimate of seven analysts surveyed by Bloomberg. Shares fell as much as 11 percent before Perry's comments on the conference call.

Suspending the annual dividend of $1 a share and reducing IndyMac's balance sheet by 14 percent because of limited lending may make $400 million of added capital available. The moves will avert the need for ``fire-selling either the entire company or our reverse mortgage business, which should be a tremendous long-term asset for our shareholders,'' Perry said.

The largest independent U.S. mortgage company, Countrywide Financial Corp., has agreed to be bought by Bank of America Corp. for about $4 billion.

Perry said in an interview last month that IndyMac has a ``good shot'' at rebounding from losses in 2007 and posting a profit in the second half of this year. Falling interest rates on home mortgages may encourage homeowners to refinance and boost production of loans above previous forecasts, he said.

`Solidly Profitable'

IndyMac's decision to curtail lending ``leaves us still with a pretty substantial and solidly profitable production model that we expect will produce over $40 billion in home loans,'' he said.

In a letter to shareholders today, Perry said he would resign as CEO if he's not re-elected to the board at the shareholder's meeting on May 1.

The company forecasts it will need to add $372 million in reserves for loan losses in 2008, down from $1.45 billion last year. ``This is the key driver of our expected return to profitability,'' Perry said.

IndyMac said the $2.4 billion in reserves is adequate if the pace of borrowers missing one or more payments continues at the fourth-quarter rate until October and then declines to 70 percent of that level by the end of next year.

``You can't express with tremendous confidence that you've got it all behind you,'' Perry said in a telephone interview today. The company would still be ``well-capitalized'' under regulatory rules if credit costs from its portfolio and discontinued lending operations triple its projections, he said.

`Paying the Piper'

A U.S. recession ``wouldn't be that material'' to IndyMac's results, Perry said in the interview. An economic slowdown will have more of a negative impact on debt such as credit cards and auto loans, he said. ``Fortunately for IndyMac, we don't have any of those. We're paying the piper now.''

The company, which had been a specialist in atypical mortgages, curtailed home loans last year that didn't meet standards that would make them eligible for sale to government- chartered companies including Fannie Mae or Freddie Mac, the two biggest sources of mortgage money.

IndyMac is also making and holding on to ``jumbo'' loans, which are larger than the $417,000 limit for mortgages that Fannie Mae and Freddie Mac will buy. Congress has debated raising that limit, which may benefit lenders including IndyMac.

To contact the reporters on this story: David Mildenberg in Charlotte, North Carolina, at dmildenberg@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: February 12, 2008 16:29 EST