IndyMac Fails; OTS, Schumer Point Fingers

It’s over for the Pasadena-based thrift that once ruled the Alt-A mortgage roost. On Friday evening, the Federal Deposit Insurance Corp. closed Indymac Bancorp Inc. (IMB) and its $32.01 billion in total assets, and total deposits of $19.06 billion. In other words, ladies and gentlemen, we have our first really serious bank failure of the current credit and mortgage crisis, and the fifth FDIC-insured bank failure so far this year. In fact, the fall of IndyMac is the largest thrift failure in history. As conservator, the FDIC said it will establish and operate IndyMac Federal Bank, FSB — not to be confused with the now-defunct IndyMac Bank, F.S.B. — to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by the now-defunct bank. Based on preliminary analysis, the FDIC said that estimated cost of the resolution to the Deposit Insurance Fund is between $4 and $8 billion; the FDIC’s war chest currently sits at around $53 billion, for those keeping score of such things, and IndyMac has been estimate to hold roughly $11.5 billion or so in non-brokered deposits. (Non-brokered deposits are usually easy to sell to another bank, meaning that the FDIC isn’t usually left holding the bag for those dollars.) At the time of its closing, IndyMac had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors. It was unclear Friday if any of those deposits will be recoverable. While surprising, the failure of IndyMac wasn’t exactly unexpected, given the current woes it faced — the bank had taken a beating at the hands of investors and depositors alike before and after Sen. Charles Schumer (D-NY), leaked a letter two weeks ago questioning the bank’s solvency, as well as from consumer groups, who zeroed in on the bank’s lending and servicing practices after Countrywide was swallowed up by Bank of America Corp. (BAC). “The CRL ought to send its members out to dance on the bank’s grave,” said one distraught employee at the bank, who asked not to be identified. “They got what they wanted.” Beyond the traditional FDIC bank-failure business of managing deposits and assets, it’s worth noting that the Federal Home Loan Bank of San Francisco has outstanding advances to the now-defunct bank totaling more than $10 billion — not a small total. Sen. Schumer had blasted Countrywide’s reliance on FHLB advances in a Senate Judiciary subcomittee hearing in May, suggesting they threatened the stability of the FHLB system; earlier this week, he characterized IndyMac as “a junior version of Countrywide” in a statement sent to the press. FHLB advances are backed by loan collateral pledged by Countrywide; critics have suggested the collateral pledged isn’t worth the advances delivered to the bank in return. The blame game Office of Thrift Supervision director John Reich was quick with the press finger over the failure, suggesting Schumer’s public flap cost the bank its solvency. The Wall Street Journal reported on the OTS director’s remarks, calling Schumer “the immediate cause” of the bank’s downfall. On Friday evening, Schumer fired back, and suggested that IndyMac’s failure wasn’t his fault, or that of various consumer groups — instead, he faulted (who else?) the OTS. “IndyMac’s troubles, just like Countrywide’s, were caused by practices that began and persisted over the last several years, not by anything that happened in the last few days,” he said in a press statement. “If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today. Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”