Regulators seize Mortgage lender IndyMac

(RTTNews) - Pasadena, California-based IndyMac Bancorp Inc. (IMB | Quote | Chart | News | PowerRating), the holding company for Indymac Bank FSB, was closed by the Office of Thrift Supervision or OTS after the company's failure to raise capital. The regulatory has named Federal Deposit Insurance Corp. or FDIC as the Conservator to the run the bank.

OTS specified that, according to FDIC data, IndyMac is the second largest financial institution to close in US history and the largest OTS-regulated thrift ever to fail. IndyMac, which had total assets of $32.01 billion and total deposits of $19.06 billion as of March 31, 2008, now joins the list of financial institutions of major collapse, including Continental Illinois National Bank and Trust Co., which became insolvent in May 1984, and American Savings & Loan Association in 1998.

IndyMac is specialized in making and selling so-called Alt-A mortgage loans to consumers, who though more credit worthy than subprime borrowers, usually doesn't have complete documentation of income or assets necessary to receive a prime-rate loan.

IndyMac, which was founded as Countrywide Mortgage Investment in 1985, and spun off by Countrywide as an independent company in 1997, came under fire recently when Senator Charles Schumer of New York commented that lax lending standards and deposits purchased from third parties left the bank on the edge of failure.

Making situation worse, issues about taking responsibility of the failure were in a debate. OTS criticized that the immediate cause of the closing of the bank was a deposit run that began and continued after the public release of a June 26 letter by the Senator. OTS noted that, following the release of that letter expressing concerns about the bank's viability, depositors withdrew more than $1.3 billion from their accounts in the following 11 business days. In response, Schumer on Friday said that, "OTS should start doing its job to prevent future IndyMacs "

Commenting on the situation, OTS Director John Reich said, "This institution failed today due to a liquidity crisis. Although this institution was already in distress, I am troubled by any interference in the regulatory process."

Based on preliminary analysis, FDIC expects this bank's failure to cost an estimated $4 billion to $8 billion to the Deposit Insurance Fund. IndyMac is the fifth FDIC-insured failure of the year. The regulator noted that IndyMac had about $1 billion of potentially uninsured deposits held by nearly 10,000 depositors, at the time of closing. FDIC said it would pay uninsured depositors an advance dividend equal to 50% of the uninsured amount.

As a result of this closure, FDIC will transfer insured deposits and substantially all the assets of the bank to IndyMac Federal Bank, FSB, which will be operated by the regulatory. The depositors would have no access to on-line and phone banking services this weekend, and these services will be operational again on Monday, July 14, 2008, and will observe normal operating hours and continue to offer full banking services.

Few days back, IndyMac revealed it has stopped making new loans as a consequence of falling below the well-capitalized level. IndyMac also then announced its plan for elimination of about 3,800 jobs, and expectation of a wider loss sequentially for the second quarter, on increase in credit losses forecast due to the fall in home prices.

IMB closed the day's session at $0.28, down 3 cents. In the extended hours trading, the company's stock further lost 18 cents.

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