FDIC nears deal to sell IndyMac to partnership
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The Federal Deposit Insurance Corp. is nearing a deal to sell IndyMac Bank to a partnership of private New York investors, nearly six months after the Pasadena mortgage lender was taken over by regulators.
The partnership includes buyout expert Christopher Flowers, hedge-fund operator John Paulson and Steven Mnuchin, chairman of private equity firm Dune Capital Management, a person familiar with the matter told me today.
No deal had been signed as of this morning, sources at IndyMac and at the regulatory agencies said. One said an announcement would come ‘hopefully today’ and in any case by the Dec. 31 target the FDIC has set for a sale.
None of the investors in the partnership could be reached for comment.
Mnuchin is one of two former Goldman Sachs real-estate fund managers who founded Dune Capital in 2004. The firm is best known for stalking opportunistic real estate investments. Mnuchin’s interest in a deal for IndyMac was first reported on Friday.
Flowers has been approved by bank regulators to buy a troubled Missouri commercial bank.
Paulson, who made billions of dollars betting that the housing and mortgage markets would implode, gave $15 million in October 2007 to help the advocacy group Center for Responsible Lending establish the Institute for Foreclosure Legal Assistance.
If the deal goes through as anticipated, the reborn IndyMac would operate under a new charter granted by the Office of Thrift Supervision, the arm of the U.S. Treasury that oversees savings and loans, several sources said.
The OTS, IndyMac’s chief regulator before the lender collapsed, came under fire in a recent report from the Treasury Department’s inspector general, which said the regulator allowed IndyMac to alter its financial statements last May in a way that concealed the extent of its problems.
It wasn’t until July that IndyMac, a spinoff from Countrywide Financial Corp., was shut down by regulators under the weight of its troubled adjustable-rate mortgages, typically ‘jumbo’ loans made without verifying borrowers’ incomes, and a run on deposits.
At last estimate, the debacle was expected to cost the federal deposit insurance fund $8.9 billion, but the terms of a sale could change that figure.
Key details of the expected transaction remain unclear, including whether IndyMac customers who had deposits too large to be fully insured by the FDIC would recover their losses. So far, these depositors have had access to only 50% of their uninsured balances.
It also was unclear to what extent the FDIC, which has operated IndyMac since July, might provide backstops to the deal, perhaps by agreeing to share future losses on the lender’s mortgage portfolio.
Banking consultant Bert Ely of Alexandria, Va., said in an e-mail to me over the weekend that he believed the FDIC’s $8.9-billion loss figure for IndyMac would rise. He also questioned whether the private-equity deal was as certain as news accounts made it sound late last week:
Given IndyMac’s checkered history, this deal is going to be examined quite closely as well as its results going forward. I can’t imagine that the regulators will let the new management get too adventuresome with insured deposits ... which raises this most important question: How are the new owners going to make a decent rate of return on their invested capital given (1) IndyMac’s lousy deposit franchise, (2) the likelihood that in many cases the market value of properties collateralizing the mortgages IndyMac owns have not yet bottomed out, and (3) the likely high costs of servicing the mortgages IndyMac has in its servicing portfolio due to all the problem mortgages in that servicing portfolio?
In a phone interview, Ely said, ‘I’m not predicting anything.’ But because of the complexities involved, he added: ‘Until we see a final agreement I would not be surprised to see this deal blow up.’
-- E. Scott Reckard
