After its blockbuster acquisition of FirstFed Financial Corp. in December, OneWest Bank became Southern California’s largest depository institution by asset size.
Now, the savings and loan created from the wreckage of failed mortgage giant IndyMac Bank is seeking to become a banking powerhouse all across the West Coast.
The Pasadena thrift is preparing to open several branches, roll out an ambitious branding campaign and is even considering further acquisitions.
“There’s been an enormous amount of work here in the first nine months,” said Chairman Steven Mnuchin, a former Goldman Sachs Group banker, in an interview last week. “The investor base is very focused on the long-term opportunities.”
OneWest was born in March when a group of investors acquired IndyMac’s assets from the Federal Deposit Insurance Corp. In December, OneWest more than doubled its branch network to 72, and upped its total assets to $24 billion, by acquiring struggling L.A. thrift FirstFed in an FDIC-assisted purchase.
The OneWest ownership group includes private equity and hedge fund heavyweights such as John Paulson; George Soros; and Michael Dell, chairman of computer company Dell.
IndyMac, which had been largely Internet-focused, had a small, scattered network of branches, with offices in far-flung locales such as Duarte and Chino Hills. Adding FirstFed’s branches to the fold helped fill in OneWest’s footprint with enviable locations in and around Los Angeles.
Now, OneWest plans to open several startup branches in 2010, including a Beverly Hills location slated for June, before considering acquisitions that could raise its West Coast network to as many as 150 branches.
“With the acquisition of FirstFed we have critical mass” in Los Angeles, Mnuchin said.
Bert Ely, a bank consultant in Alexandria, Va., said for an institution with plans as ambitious as OneWest’s, building a viable branch network that can compete with Wells Fargo, Chase Bank and other major institutions is vital.
“It’s important,” he said, “particularly in terms of building market share in a market as big as L.A.”
IndyMac and FirstFed based a substantial portion of their businesses on home mortgages, including the risky subprime and adjustable rate loans that got them into trouble. But OneWest hopes to offer a wider range of products and services, and build a strong deposit base, making it more akin to a community or regional bank.
The institution recently started a jumbo mortgage program, and Mnuchin said OneWest will likely expand its commercial lending in late 2010.
In second quarter 2009, its first under new ownership, the thrift generated $203 million in profit; in the third quarter it made $495 million. The thrift is expected to report fourth quarter data in the next few weeks.
The institution is young, Ely said, but its profits are impressive. “The big question is: What’s the real driver on that profitability?”
Since the company is privately held, he said, it is difficult to get specific information, but most of the profits in the past quarter came from changes in the market value of assets and from loan servicing fees.
One factor in OneWest’s favor is the loss-sharing arrangement with the FDIC, a benefit that has become a standard feature of bank failure acquisitions.
“Those loss-share agreements give the acquirer substantial coverage in terms of realized losses,” said Kendall Raine, executive managing director of the financial institutions group at Marshall & Stevens Inc., a financial advisory and valuation firm in downtown Los Angeles. “The returns can be very attractive.”
Additionally, since IndyMac had been held in receivership for eight months, regulators had time to write down or sell off a substantial amount of the thrift’s soured assets. However, as OneWest tries to establish its own identity, the institution still must contend with the problems left over from IndyMac.
In November, a judge in New York reprimanded OneWest over its decision to foreclose on a home purchased by a couple in 1994 with a loan through IndyMac. OneWest is appealing the decision.
Upset over what they view as OneWest’s callous, bullying tactics, many former IndyMac customers have spoken out against the new institution. Angry homeowners have taken to online message boards in large numbers to complain about the unwillingness of OneWest to renegotiate loan terms with former IndyMac customers.
Moe Bedard, a mortgage blogger who operates LoanSafe.org, a Web site with information for homeowners, said he noticed a significant increase in the number of complaints about IndyMac once OneWest acquired the assets. All the major lenders are criticized, but he said OneWest, a relatively small lender on a national scale, receives a disproportionately large number of complaints.
“I see very, very few people get modifications,” Bedard said. “I’d say they are one of the worst of the worst to deal with.”
But analysts and OneWest executives pointed out that the thrift is limited in its ability to modify loans.
Roughly 90 percent of the loans serviced by OneWest are not owned by the thrift, meaning that OneWest either cannot modify the loan or must obtain approvals from other parties first.
“Our servicing portfolio is disproportionately large relative to our bank,” Mnuchin said. “As a result, we have lots of restrictions about what we can do and what we can’t do regarding loan modifications.”
Still, OneWest has modified more than 10,000 loans in the past year. Recently, the thrift signed up for the government’s Home Affordable Modification Program.
“Loan modification is a huge priority for the bank,” Mnuchin said.
Getting away from IndyMac has been a slow process.
It took months for the thrift to roll out its new Web site, logo and signature colors. The institution recently replaced all the IndyMac signs at branch locations.
Now, with an advertising campaign in the works, OneWest hopes to establish its own identity. However, Mnuchin did not reveal details of the campaign or when it will be rolled out. But the subtext, analysts said, will be clear.
“They just want to have everybody forget about IndyMac,” said Wade Francis, president of Unicon Financial Services Inc., a bank consulting firm in Long Beach.
Recently, OneWest executives have been meeting with business and political leaders in Pasadena to garner support in the local community.
Paul Little, chief executive of the Pasadena Chamber of Commerce, who has met several times with OneWest’s management, said the IndyMac name still carries a lot of “baggage,” but the changes that came with new ownership have gone a long way toward erasing the stigma.
“They brought in all new people; they’re in the process of rebranding themselves,” Little said. “They really want to establish OneWest as a full-service retail banking operation. I think they’re sincere and earnest in what they’re proposing.”
The local business community also has been impressed that both Mnuchin and OneWest Chief Executive Terry Laughlin, the former chief executive of Merrill Lynch Bank & Trust, have recently purchased new homes in the L.A. area.
Despite interest from dozens of private equity firms, OneWest is one of just a few private equity-backed teams to receive approval to acquire a failed bank. Regulators have feared that investors would cash out quickly, leaving banks loaded with debt and vulnerable to another collapse.
Pasadena Mayor Bill Bogaard, who met recently with OneWest executives, said his impression is that the owners are committed to establishing a lasting community presence.
“OneWest intends to be a contributory member,” Bogaard said.
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