Latest victim of mortgage crisis, IndyMac taken over
By Jonathan Burton & John Letzing, MarketWatch
Last update: 8:31 p.m. EDT July 11, 2008
SAN FRANCISCO (MarketWatch) -- IndyMac Bancorp Inc. became the biggest casualty of the subprime mortgage crisis on Friday, as federal regulators shut down the troubled Pasadena, Calif.-based savings bank in one of the largest U.S. bank failures ever.
The Federal Deposit Insurance Corp. said in a statement it will take over operations of IndyMac (IMB
IndyMac Bancorp IncIMB) , which will open for business on Monday as IndyMac Federal Bank. The thrift had total assets of $32.01 billion as of March 31.
Much of IndyMac's business was built on Alt-A single family mortgages, which were often made to borrowers with poor credit. As the secondary market for these loans collapsed, IndyMac's financial condition became precarious.
"IndyMac has been in trouble for a long time, in part because of the way it funded itself with a large reliance on broker deposits, interest-rate sensitive deposits, and Alt-A mortgage lending," said Bert Ely, a banking consultant in Alexandria, Va.
IndyMac is the second-largest financial institution to fail in U.S. history, according to the Office of Thrift Supervision, which had regulated IndyMac.
Regulators said the "immediate cause" of IndyMac's failure was a deposit run in recent days that began after a June 26 letter to the OTS and the FDIC from New York Senator Charles Schumer was made public. The letter voiced concerns about IndyMac's soundness.
By July 10, depositors had pulled more than $1.3 billion from their accounts, the OTS said in a statement.
"The institution failed today due to a liquidity crisis," said OTS Director John Reich. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."
Schumer couldn't immediately be reached for comment late Friday.
Serious questions about IndyMac's viability had surfaced earlier this week, when the bank reported that regulators said that its business was no longer "well capitalized."
The company had agreed to a new business plan with regulators that included halting new mortgages to shrink its balance sheet and improve capital ratios, while announcing it would cut more than half of its workforce. See related story.
Ely said that while Schumer's letter did have an impact, IndyMac's collapse was only a matter of time. "What Schumer did was wrong and irresponsible, and I'm not sure what he was trying to accomplish," Ely noted. "But IndyMac was already well-known to be a forthcoming failure."
Shares of IndyMac fell more than 60% after hours, to 11 cents. A year ago, the stock traded as high as $29.91.
Jonathan Burton is an assistant personal finance editor for MarketWatch, based in San Francisco.
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2 comments:
Those with multiple accounts under $100,000 are probably screwed. During the S & L mess I had a friend with three accounts each under $100,000 that totaled $230,000. She was reimbursed a total of $100,000. Those at the S & L assured her all the money was insured. There was another S & L across the street. She lobbied Congress to no avail.
John,
I just left PT for my ailing back...if your name implies back problems....I feel your pain and am in middle os bad bout..
My cash is underperforming but it is in a MM fund of US treasuries which I beleieve is only way to keep your money safe, though I dont see MM funds collapsing..but I take no chances! Look forward to hearing from you again, hope your name does not imply actual badd back
D
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