IndyMac Bancorp became the second-biggest federally insured financial company to fail Friday after a run by depositors left the California...
IndyMac Bancorp became the second-biggest federally insured financial company to fail Friday after a run by depositors left the California mortgage lender short on cash.
The Federal Deposit Insurance Corp. (FDIC) will run a successor institution, IndyMac Federal Bank, starting Monday, the Office of Thrift Supervision (OTS) said Friday. Customers will have access to funds this weekend via automated teller machines.
The Pasadena, Calif.-based bank specialized in so-called Alt-A mortgages, which didn’t require borrowers to provide documentation on their incomes. Its home state 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 in New York, said before the seizure was announced. Aurelian is short selling IndyMac shares to gain from declines.
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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.
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.
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.
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 Friday.
IndyMac came under fire last month from Sen. Charles Schumer, D-N.Y., 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.
IndyMac announced Monday that it was firing half its employees. The lender agreed to sell most of its retail mortgage branches to Prospect Mortgage of Northbrook, Ill.
IndyMac Chairman and CEO Michael Perry said the drastic measures were made in conjunction with banking regulators to improve the company’s financial footing and “meet our mutual goal of keeping IndyMac safe and sound through this crisis period.”
Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC said.
Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount.
The housing outlook was not improving, however, and Perry warned he expected the company’s second-quarter loss to be wider than its loss in the first quarter.