A group of private investors has agreed to buy for nearly $14 billion the collapsed home loans specialist IndyMac Bank, the third-largest bank to fail since the US government began insuring deposits in 1934.
A group of private investors has agreed to buy for nearly $14 billion the collapsed home loans specialist IndyMac Bank, the third-largest bank to fail since the US government began insuring deposits in 1934.
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The group is headed by Steven Mnuchin, chairman of Dune Capital Management, who will serve as chairman and chief executive of a holding company for IndyMac, the Federal Deposit Insurance Corp said Friday.
The investors include bank buyout expert J Christopher Flowers, hedge-fund operator John Paulson and a private investment firm that manages money for computer mogul Michael S Dell.
Terry McLaughlin, a banker who has worked at Merrill Lynch Bank & Trust and Fleet Bank, will be the president and CEO of the new thrift, which will inherit IndyMac's 33 branches, $6.5 billion in deposits and $27 billion in assets, including a troubled $16-billion portfolio of loans.
The FDIC, which has operated IndyMac since it collapsed in July, had hoped to find a buyer in three months. If the deal closes as expected late this month or early in February, it will have taken nearly eight months.
Only twice previously in its 64-year history has the FDIC tapped private equity instead of a banking firm to take over a failed institution.
The buyers have agreed to pay the FDIC about $13.9 billion and will share losses with the federal agency. The bank is to assume the first 20 per cent of losses, after which the FDIC would absorb the lion's share of additional losses.
The agency said IndyMac's cost to the federal deposit insurance fund would be $8.5 billion to $9.4 billion, in line with previous loss estimates of $8.9 billion.
The new institution intends to focus on making home loans and providing customer service for mortgage holders, according to a statement from the Office of Thrift Supervision, which will supervise the new bank.
Uninsured IndyMac depositors will have to wait to see how much of their losses they may recover, the FDIC said. Those depositors have already been repaid 50 per cent of the $541 million in uninsured funds that the FDIC determined was held in IndyMac accounts.
IndyMac in 2007 was among the 10 largest US mortgage lenders and customer-service companies, with about 10,000 employees. It currently employs about 2,000, including roughly 300 in its branches and several hundred each in its administrative operations and the reverse-mortgage business.
IndyMac's failure came after years of rapid expansion during the housing boom. From June 2005 through March 2008, the assets on IndyMac's books jumped from $18 billion to $32 billion, fuelled by variable-rate loans made without verifying the finances of borrowers, who often were allowed to pay so little each month that their loan balances rose.
Total lending by the Pasadena savings and loan firm was far greater: IndyMac currently serves as the servicer on $157.7 billion in loans for other owners, mainly mortgages it had made and then sold.
The only bank failures as large as IndyMac's were those of Chicago's Continental Illinois National Bank & Trust, which had $40 billion in assets when it collapsed in 1984, and Stockton, California-based American Savings & Loan, which had $30 billion in assets when it failed in 1988.
American's assets were the equivalent of $53 billion in today's dollars, the federal Office of Thrift Supervision said when it declared IndyMac insolvent on July 11.
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