Private investors closed a deal Friday to buy Pasadena's IndyMac Bank from regulators, promising to make the 33-branch thrift a "healthy banking institution" again.
How exactly do they plan to accomplish that? So far, no one's saying.
IndyMac collapsed July 11, 2008, the victim of an ill-fated strategy of using high-interest deposits to fund mortgage loans to borrowers who often weren't asked to document their earnings or assets.
Its new owners are led by Steven Mnuchin, chairman of Dune Capital Management, who will serve as chief executive of an IndyMac holding company. Other investors include bank buyout expert J. Christopher Flowers, hedge-fund operators John Paulson and George Soros, and a firm that manages money for computer mogul Michael S. Dell.
Terry McLaughlin, a veteran banker, is to be president and chief executive of the bank.
The new owners declined to be interviewed. In a statement, Mnuchin said his group was working with regulators "to structure a mutually beneficial transaction to restore IndyMac as a healthy banking institution. At closing, we will inject significant private capital into IndyMac so that it can once again effectively serve its customers and communities."
Mnuchin didn't offer any details. Officials with the Federal Deposit Insurance Corp., which seized the bank last summer, also declined to discuss how the new team might revive the bank now that the market for high-risk mortgage loans has evaporated.
FDIC spokesman David Barr said overseeing the business of the reborn bank would be the responsibility of the U.S. Office of Thrift Supervision.
In a statement, the OTS said: "The business model for the new institution would focus on home mortgage lending and mortgage loan [customer] servicing." A spokesman declined to elaborate.
The new game plan is key for IndyMac. After delinquencies soared on its loans in 2007, the thrift attempted to shift to making old-fashioned, fully documented loans of the kind that mortgage giants Fannie Mae and Freddie Mac traditionally bought. But it was unable to make any money in that business, and now its only new loans are reverse mortgages, which allow older people to extract equity from their homes.
The FDIC's announcement said it had agreed to sell what was being called the New IndyMac to the investors group for $13.9 billion.
That price for IndyMac's assets was largely offset, however, by $12.3 billion that the FDIC was paying the investors to take over the bank's liabilities, including $6.5 billion in deposits.
The net effect, Barr said, was $1.6 billion to be paid by the investors to the FDIC's receivership.
That in turn was more than offset by the FDIC's agreement to shoulder nearly all the losses expected as the thrift works through the troubled portfolio of exotic mortgages.
In the end, the federal deposit insurance fund, which is maintained by mandatory contributions from the banking industry, will suffer losses of $8.5 billion to $9.4 billion, in line with previous loss estimates of $8.9 billion, the FDIC said.
The private investors also agreed to supply $1.3 billion in new capital to bolster the bank, whose net worth was more than $2 billion in the red on Sept. 30, the last date for which the FDIC provided a detailed accounting.
Bert Ely, a banking industry consultant, said the uncertainties created a worrisome picture for a thrift whose $27 billion in assets have soured so badly. He criticized the FDIC for not releasing more complete financial data on the transaction and the buyers.
"Have they really committed to put enough capital into this deal?" Ely said in an interview. "For a balance sheet of this size, $1.3 billion is not that impressive."
Only rarely since it began insuring deposits in 1934 has the FDIC sold a failed bank to private investors instead of a stronger bank. The current market for selling assets is "challenging," FDIC Deputy Director James Wigand, the lead negotiator for the transaction, said in a statement.
An FDIC program to restructure IndyMac mortgages so troubled borrowers can pay less and avert foreclosures is expected to continue. The program has saved about $423 million based on comparing the value of the modified loans to what would be realized through foreclosure, the FDIC said.
Uninsured IndyMac depositors will have to wait to see how much of their losses they may recover, the FDIC said. Those depositors have already been repaid 50% of the $541 million in uninsured funds that the FDIC determined was held in IndyMac accounts.
As the names of the private investors leaked out over the past week, the uninsured depositors began lobbying the buyers to help them recover their losses, contending that employees of the thrift had misinformed them about deposit insurance limits or had erred in setting up their accounts.