Federal regulators want to quickly unload the mess that is IndyMac, but several experts said they will have a tough time selling the failed thrift easily.
That's because IndyMac, despite its large size, doesn't have a lot of assets that would be attractive to many buyers, and some of those assets have dissipated.
The Federal Deposit Insurance Corp., which seized Pasadena-based IndyMac Bancorp on July 11 after a $1.3 billion run depleted liquidity, has enlisted Lehman Bros. to find an acquirer. Regulators hope to complete the transaction within 90 days.
To attract a buyer quickly, particularly during the ongoing mortgage crisis and credit crunch, the FDIC will have to sell off the thrift, either whole or piecemeal, for much less than it normally would.
"They've got to mark down the prices of the assets enough so that the buyer thinks they are going to make money," said Bart Narter, a senior analyst with consulting firm Celent. In the current economic climate, he added, "you're going to have to give a much bigger discount."
Not too long ago, IndyMac was riding high as the nation's largest originator of "Alt-A" loans those rated between prime and subprime, for borrowers often with less-than-perfect credit. But as the housing market collapsed, IndyMac was forced to contend with rising default rates among its borrowers.
The Office of Thrift Supervision closed IndyMac and transferred control of its $30 billion or so in loans and other assets to the FDIC in what is one of the largest bank failures in U.S. history. Analysts said it was an ominous sign that the FDIC took the unusual step of running the bank itself, which means it could not line up a buyer before the closing.
One aspect working against an easy sale is the relative lack of branch offices. Buyers often are attracted to failed banks because they have established branches, which are expensive to set up and take time to pay off. For example, Countrywide Financial Corp.'s large retail branch network was one of the primary reasons it was attractive to Bank of America Corp., which acquired Countrywide on July 1.
But IndyMac only operated 33 branches because it made many of its loans through other lenders. What's more, said Wade Francis, president of Long Beach-based consulting firm Unicon Financial Services, IndyMac's branches weren't sophisticated operations.
Also, deposits are attractive to buyers. IndyMac had $19 billion of deposits, but only about $3 billion in so-called core deposits, according to its most recent quarterly filing. Core deposits, including savings and checking accounts, are more valuable than other deposits because they are considered stable, long-term funding sources.
The rest of IndyMac's deposits, close to $16 billion, were in certificates of deposit. A significant portion of that, at least $5 billion, was from brokers who gather deposits worldwide and put them in banks that offer the highest interest rates. Those deposits tend to flee when interest rates drop.
"A lot of their money is due to the fact that they were paying the highest rates in the nation," Francis said.
To make matters worse, many of the deposits are gone. Customers lined up and pulled money from the bank since it reopened last week under federal supervision. FDIC spokesman David Barr would not provide specific numbers, but he said the run, which had subsided, "was getting close to being as heavy as it was prior to the closing."
In fact, prior to the closing, there had been a $1.3 billion run. Part of the impetus for the federal action was the run, sparked by a June 26 letter written and made public by New York Democratic Sen. Charles Schumer who questioned the institution's financial health and seemed to imply that customers could lose money.
Barr admitted IndyMac has a smaller base of core deposits than many institutions as large as IndyMac, but he said he believes the branches will be attractive to regional banks looking to expand in Southern California.
"Their retail deposit side is not as (large) as you would expect for a $30 billion institution," he said. "(But) they do have 33 branches here in Southern California and there are local area depositors that would be attractive."
On the other hand, the FDIC has some things to offer any buyer. For starters, IndyMac does not have large numbers of subprime loans, attorney Joseph Lynyak pointed out.
Lynyak, a partner in the bank regulatory practice at Los Angeles law firm Venable LLP, also said that the FDIC was able to step in before management had bled the company of its most marketable assets.
"Conservatorship freezes management from making any sudden decisions, especially from selling off quality assets while leaving the government holding a bag full of leftover junk loans," Lynyak said in an e-mail.
Analysts had speculated that in order to stay in business, IndyMac may have had to sell its profitable reverse mortgage business, which taps equity to provide regular income to elderly homeowners.
Additionally, the FDIC takeover will allow an institution to purchase IndyMac's loans without fear of lawsuits. "Any final sale of what remains of IndyMac (will) be washed through a receivership to contain subsequent lawsuits there," he said.
IndyMac is currently the target of dozens of lawsuits from former borrowers alleging that the company engaged in deceptive lending practices. Securities class-action powerhouse Coughlin Stoia Geller Rudman & Robbins LLP filed a lawsuit last Tuesday against IndyMac in Los Angeles federal court.
"A good thing about buying a failed bank from the FDIC is problems with that bank can be left behind with the FDIC," Barr said. "You can come in here and buy a clean institution from us."
It was also revealed last week that the FBI is investigating IndyMac for possible fraud related to its lending practices. The FBI has said it is targeting the company and not individuals, but would not provide more information.
For IndyMac employees, the past few weeks have been a whirlwind. The company's more than 7,000 employees are working to keep the bank running and respond to the avalanche of depositor demands.
Corporate employees, from human resources staff to executive vice presidents, have begun helping ground level at the thrift's branches amid a surge of activity following the federal takeover.
"We've got at least 150 additional employees from corporate offices helping out," said IndyMac spokesman Evan Wagner.
And though a sale of the bank's assets could come soon, putting at least some employees out of work, the atmosphere among the staff is generally positive, claimed Wagner, who admitted with an air of good humor, it is "likely my job is on borrowed time."
Still, several senior managers already have been replaced. Chief Executive Michael Perry and President Richard Wohl were let go, and Rayman Mathoda, chief administrative officer, resigned last week.
In the meantime, Barr said the FDIC plans on keeping employees around as long as possible, saying, "We need them."
But some customers are saying there were not enough employees. Tensions were high as depositors waited in line for hours at local branches last week.
One IndyMac borrower said he tried to contact the thrift via telephone but was told the wait time would be seven hours. The borrower, who asked that his name not be used, said his Chatsworth home is in foreclosure and he hoped to speak with IndyMac to renegotiate the terms of his mortgage.
He may get some help from the FDIC, whose Chairwoman Sheila Bair said last week that the agency will halt current IndyMac foreclosures and renegotiate loan terms with borrowers in an effort to keep them in their homes.
For the time being, though, the borrower said his biggest concern is making sure there is a roof over his family.
"We don't want to be homeless. I'm scared and I'm concerned," he said. "The one thing that makes it easy to go to sleep at night is knowing I'm not the only one there are thousands of others in the situation I'm in."
The FDIC guarantees all deposits up to $100,000 and retirement accounts up to $250,000.
Regulators said roughly $1 billion of IndyMac's $19 billion in deposits was uninsured. The FDIC said it would pay at least 50 percent of the uninsured deposits back and perhaps more if it raises enough capital through the sale of IndyMac's assets.
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