U.S. overseer says IndyMac "safe and sound"

PASADENA, California Mon Jul 14, 2008 7:04pm EDT

1 of 18. People enter an IndyMac Bank branch at the company's corporate headquarters, after waiting in line for it to open under federal management, in Pasadena, California July 14, 2008.

Credit: Reuters/Danny Moloshok

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PASADENA, California (Reuters) - Three days into its receivership, the former IndyMac Bank is "as safe and as sound as any bank in the country right now," John Bovenzi, the U.S. banking official running the failed bank, said on Monday, while conceding that he expects more bank failures.

Bovenzi, who oversees bank receiverships for the Federal Deposit Insurance Corp, was not surprised to see hundreds of customers waiting outside the bank's Pasadena, California, headquarters Monday morning to withdraw their money, but predicted the anxiety would quickly abate.

"I think what people will see when they go in and get their money is that it's safe," Bovenzi said in an interview outside the newly renamed IndyMac Federal Bank. "There will be some lines until people see that."

But consumers should expect to see more bank failures as defaulted mortgage loans shake out of the system, and should take steps to protect their money, he said.

"There will be more bank failures," Bovenzi said. "I don't expect it to be a large number. I don't expect there will be large bank failures. There will be small bank failures."

An unusually low number of bank failures in recent years may have lulled consumers into forgetting about FDIC coverage limits that generally protect up to $100,000 per account holder, he said. Higher deposit insurance limits apply to some accounts.

Following the failure of a small Utah bank in June 2004, the banking industry suffered no failures until February 2007, according to FDIC data. Only three banks failed last year, and IndyMac is the fifth to fail in 2008, the FDIC said.

The FDIC was returning up to 50 percent of funds over the $100,000 limit to some depositors Monday, he said.

FDIC froze the remainder of those funds and handed out receivership certificates to account holders Monday until claims experts determine how much of that money is insured.

The certificates entitle IndyMac depositors to receive more of their frozen funds as the FDIC sells off the bank's assets.

They will likely have to wait at least several months, if not years, as the FDIC resolves IndyMac's fate.

"We'd like to see if we can sell the institution as a whole to one healthy bank," Bovenzi said.

If such a buyer cannot be found, the FDIC would sell off assets piecemeal, including its Financial Freedom reverse mortgage business, 33 branches and loan portfolio, he said.

"Companies like Financial Freedom have a great deal of value so there will be a market for those assets," he said.

Former IndyMac Chief Executive Michael Perry will not participate in the sale of the bank.

"We didn't ask him to have a position with the new bank ... which is fairly typical," Bovenzi said.

FDIC had not approached any potential buyers or received any feelers from suitors as of Monday because "we haven't focused on it yet," Bovenzi said.

Nor have federal overseers determined whether IndyMac's parent, IndyMac Bancorp Inc, should seek Chapter 11 bankruptcy protection, he said.

"Our focus over the weekend was on transferring all assets to the new bank" to ensure that customers would have access to their insured funds when the bank reopened Monday, he said.

FDIC didn't bother to change signage on the IndyMac building in central Pasadena or at branches because it does not expect to own the bank "for more than a few months," he said.

(Reporting by Gina Keating; editing by Jeffrey Benkoe)

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