* OneWest to assume $4.5 bln in First Federal deposits
* Seven U.S. banks fail on Friday
* Bank failures now total 140 in 2009
(Recasts, adds expert comment)
LOS ANGELES/NEW YORK, Dec 18 (Reuters) - OneWest Bank, formerly failed mortgage lender IndyMac, bought the assets of First Federal Bank after it was closed by U.S. regulators, in a deal that may bolster the case for private investment in banks.
California's First Federal was one of seven U.S. lenders closed on Friday by regulators, bringing the total number of U.S. bank failures this year to 140.
The 39 branches of First Federal -- formerly controlled by FirstFed Financial FFED.PK -- reopen on Saturday as OneWest Bank FSB.
In addition to assuming $4.5 billion in total deposits, OneWest, of Pasadena, Calif., agreed to buy essentially all of First Federal's assets of $6.1 billion, the Federal Deposit Insurance Corp said.
The deal is OneWest's first since it was formed to take over IndyMac's assets earlier this year by a group of private equity and hedge fund investors, including funds run by billionaire investors J.C. Flowers, John Paulson and George Soros.
It should come as heartening news for other private investors looking to make inroads into the sector, including funds being raised by bank executives like former Bank of America (BAC.N) Vice Chairman Gene Taylor. [ID:nN18246968]
"It certainly validates their argument to the FDIC that they can go in and successfully run a bank, turn it around, and then buy additional ones," said Chip MacDonald, a banking lawyer at Jones Day, referring to private investors.
The Federal Deposit Insurance Corp, worried about the stability of the banking sector over the long term, has made failed bank acquisitions by private investors harder than they are for banks looking to buy one another.
Other bank regulators, like the Federal Reserve, also continue to jealously guard the separation between banking and commerce, which makes it difficult for private equity investors to bid on banks.
"A successful experience like this between the FDIC and private equity may encourage the FDIC to be a little more receptive," MacDonald said.
With an estimated cost of $146.3 million to the Deposit Insurance Fund, the FDIC also got a much better deal on this than a lot of other failed banks during this crisis, he added.
Smaller institutions have been collapsing at a rapid clip because of deteriorating loan portfolios and related liquidity and capital issues amid a weak economy.
FirstFed posted a $244.8 million net loss in its fourth quarter, hit by declining California home prices and a 10-fold leap in bad-loan provisions.
First Federal declined to comment. OneWest declined to make Chairman Steven Mnuchin available for an interview.
This year has marked the highest annual level of bank failures since 1992, when the industry was still cleaning up from the savings and loan crisis.
Other banks closed on Friday include: Imperial Capital Bank of La Jolla, California, with assets of $4 billion; Peoples First Community Bank of Panama City, Florida with assets of $1.8 billion; New South Federal Savings Bank of Irondale, Alabama with assets of $1.5 billion; Independent Bankers' Bank of Springfield, Illinois, with assets of $585.5 million; RockBridge Commercial Bank of Atlanta with assets of $294 million; and Citizens State Bank in New Baltimore, Mich., with assets of $168.6 million.
Of these, City National Bank (CYN.N) bought assets of Imperial Capital, Beal Bank bought the assets of New South, and Hancock Bank bought the assets of Peoples First Community Bank.
But the FDIC found no buyers for the remaining three.
"Tonight there have been at least three banks without buyers. The FDIC needs buyers," MacDonald said.
The FDIC has said the pace of failures will likely peak next year. This week, the agency boosted its operating budget for 2010 by 55 percent to $4 billion to handle the cost of failures, which is expect to total $100 billion from 2009 through 2013. (Editing by Edwin Chan, Carol Bishopric and Ron Popeski)