By Ari Levy and David Mildenberg
July 11 (Bloomberg) -- IndyMac Bancorp Inc. became the
second-biggest federally insured financial company to be seized
by U.S. regulators after a run by depositors left the California
mortgage lender short on cash.
The Federal Deposit Insurance Corp. will run a successor
institution, IndyMac Federal Bank, starting next week, the Office
of Thrift Supervision said in an e-mailed statement today.
Customers will have access to funds this weekend via automated
teller machines. Regulators intend to eventually sell the
company.
The Pasadena, California-based lender specialized in so-
called Alt-A mortgages, which didn't require borrowers to provide
documentation on their incomes. IndyMac's home state, where
Countrywide Financial Corp. was also located before it was bought
last week, has been among the hardest hit by foreclosures.
``Given their focus on Alt-A and a heavy concentration in
California, they would have suffered meaningful losses in almost
any scenario,'' Brian Horey, president of Aurelian Management LLC
in New York, said before the seizure was announced. Aurelian is
short-selling IndyMac shares to gain from declines.
Had IndyMac ``applied some common sense and changed their
approach to underwriting as the housing market peaked, they might
have lived to see the next cycle,'' Horey said.
IndyMac came under fire last month from U.S. Senator Charles
Schumer, who said lax lending standards and deposits purchased
from third parties left it on the brink of failure. In the 11
business days after Schumer explained his concerns in a June 26
letter, depositors withdrew more than $1.3 billion, the OTS said.
Liquidity Crisis
``This institution failed due to a liquidity crisis,'' OTS
Director John Reich said in the statement. ``Although this
institution was already in distress, I am troubled by any
interference in the regulatory process.''
Schumer blamed IndyMac's own actions and regulatory failures
for the seizure.
``If OTS had done its job as regulator and not let IndyMac's
poor and loose lending practices continue, we wouldn't be where
we are today,'' Schumer, a New York Democrat, said in an e-mail
today. ``Instead of pointing false fingers of blame, OTS should
start doing its job to prevent future IndyMacs.''
IndyMac becomes the largest OTS-regulated savings and loan
to fail and second-biggest financial institution to close behind
Continental Illinois in 1984, according to the FDIC. Lehman
Brothers Holdings Inc. advised the regulator in the transaction.
$900 Million in Losses
The lender racked up almost $900 million in losses as home
prices tumbled and foreclosures climbed to a record. California
ranked second among U.S. states, with one foreclosure filing for
every 192 households in June, 2.6 times the national average.
After peaking at $50.11 on May 8, 2006, IndyMac shares lost
87 percent of their value in 2007 and another 95 percent this
year. The stock fell 3 cents to 28 cents at 4 p.m. New York time
today.
IndyMac's shutdown may mean regulators will have to raise
more money to support the federal deposit insurance program that
repays customers when a bank fails, Reich said during a press
conference. The failure will cost the fund about $4 billion to $8
billion, the FDIC said in a statement.
About $1 billion of uninsured deposits are held by about
10,000 customers, the FDIC said. Those depositors will get an
``advance dividend'' equal to half the uninsured amount,
according to the statement.
The FDIC insures $100,000 per depositor per insured bank,
according to the agency's Web site. Customers may qualify for
more coverage depending on the type of accounts they own, and
some retirement accounts have a $250,000 limit.
Workforce
IndyMac announced on July 7 that it was firing half its
employees. The lender agreed to sell most of its retail mortgage
branches to Prospect Mortgage, giving the Northbrook, Illinois
based-company more than 60 branch offices with 750 employees.
IndyMac also has a retail network with 33 branches and $18
billion in deposits, mostly insured by the FDIC.
The company was started in 1985 by Countrywide founders
Angelo Mozilo and David Loeb under the name Countrywide Mortgage
Investments. In 1999, it converted into a savings institution
from a real estate investment trust. That year, Michael Perry
replaced Mozilo as chief executive officer.
Under Perry's leadership, profit more than doubled from $118
million in 2000 to $343 million in 2006 amid the housing boom.
The stock more than tripled over that stretch.
To contact the reporters on this story:
Ari Levy in San Francisco at
alevy5@bloomberg.net;
David Mildenberg in Charlotte at
dmildenberg@bloomberg.net.
https://www.bloomberg.com/apps/news?pid=20601103&sid=atrd9_l.GrL8&refer=us