IndyMac Fails

Discussion in 'Wall St. News' started by thurstonhowell3, Jul 11, 2008.

  1. IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure

    By Ari Levy and David Mildenberg

    July 12 (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 FSB, starting next week, the Office of Thrift Supervision said in an e-mail yesterday. The regulator blamed U.S. Senator Charles Schumer for creating a ``liquidity crisis'' after a letter on June 26, in which he expressed concern that the bank may fail.

    The Pasadena, California-based lender specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. The demise adds to the crisis caused by the subprime collapse and may mean regulators will have to raise more money to support the federal deposit insurance program that repays customers when a bank fails.

    ``IndyMac is the vanguard, the precursor of more stuff coming,'' said Christopher Whalen, managing director of Institutional Risk Analytics, a market research company in Torrance, California. ``It's not surprising to see IndyMac resolved. What you have to ask is what's coming next. It's going to be a wave of medium to bigger-than-medium institutions.''

    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. California ranked second among U.S. states, with one foreclosure filing for every 192 households in June, 2.6 times the national average.

    IndyMac's Losses

    The lender racked up almost $900 million in losses as home prices tumbled and foreclosures climbed to a record. IndyMac becomes the largest OTS-regulated savings and loan to fail, according to the FDIC.

    Mortgages serviced by IndyMac will be turned over to the FDIC and the regulator will be reaching out to customers immediately, Chairman Sheila Bair said on a conference call yesterday. Customers will have access to funds this weekend via automated teller machines and electronically and by phone starting next week.

    The FDIC intends to sell IndyMac within 90 days, preferably as a single entity, Bair said. If that doesn't work, the lender will be sold off in pieces, she said.

    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 yesterday.

    Schumer's Comments

    IndyMac came under fire last month from Schumer, the Democrat from New York, who said lax lending standards and deposits purchased from third parties left it on the brink of failure. During the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion, the OTS said.

    ``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 bank's 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 yesterday. ``Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.''

    The failure will cost the federal deposit insurance program about $4 billion to $8 billion, the FDIC said. Some $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.

    Firing Workers

    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.

    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 bank 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 bank 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.

    Perry will not be continuing with the new FDIC-controlled institution, while other executives will be retained, Bair said. The FDIC's John Bovenzi will assume the CEO role.
     
    #11     Jul 12, 2008
  2. IMB's market cap went from ~4.5bln a year ago to 28.25m on Friday's close. Now the media is reacting like it's a big surprise IMB is finished.

    I can already imagine the headlines on DSL and BKUNA.
     
    #12     Jul 12, 2008
  3. m22au

    m22au

    I agree with your post, however I note from the FDIC report that:

    "Some $1 billion of uninsured deposits are held by about 10,000 customers"

    Headlines about DSL and BKUNA aren't going to be that bad, what is a scary thought is similar headlines about WM


     
    #13     Jul 12, 2008
  4. Rubicon11

    Rubicon11

    Wow, this is the first of many collapses coming very soon.
    Anyone see the after-hours trading?, Indy was down 65%.
    Was anyone smart enough to get in on Friday? Hats off to you, because the puts on Monday are going to explode.
     
    #14     Jul 12, 2008
  5. This is a sad commentary about the U.S. these days...that we have to worry about mainline institutions failing (like an Etrade Bank, etc). There is a solution imo, and I moved all my funds around in November of 2007 as I turned long term short the U.S. economy and markets. There are "Private" banks that you can use for portions of your holdings and then diversification within the mainlines for the remainder of funds. I use 3 primary accounts for my funds (non-trading funds), one is a private bank, one is a very large financial brokerage (Visa debit with free checking), and my third account is with a very strong Credit Union that has very solid financials.

    In addition, I now keep 20% cash/gold at two banking locations in safety deposit boxes.....I am not taking any chances as no one has a real clue just how bad things could get (like a STUPID attack of Iran and $200 a barrel oil with everyone freakin out).

    BTW, what do U.S. military aircrews carry for currency in their ALSE survival vests in combat areas (they sure in hell do not have a roll of $100's....LOL!!!)???

    A.......GOLD COINS! :)
     
    #15     Jul 12, 2008
  6. Indymac was created along with Countrywide by mozilo then spun off, no wonder it failed, it had the touch of death from mozillo...
     
    #16     Jul 13, 2008
  7. The lowest strike trading is $2.5. Stock closed at $0.28 on Friday. The $2.5 put traded at $2.25.

    The put is going to 'explode' from $2.25 to $2.50. Congrats to all winners :cool:
     
    #17     Jul 13, 2008
  8. It's a bitch aint it. All this paper and nowhere safe for it.

    I'm not inclined to buy gold and lose $ if it collapses.
     
    #18     Jul 13, 2008
  9. Moz always looked like a gangster and a fraud to me.

    Looks like appearances didn't lie.

    His sale of 500 million ++++ of CFC even as it was failing is the crime of the decade.

    If we don't prosecute even the most obvious thievery , what hope is there?

    Not much
     
    #19     Jul 13, 2008