* 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)
By Gina Keating and Paritosh Bansal
LOS ANGELES/NEW YORK, Dec 18 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
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
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
(Editing by Edwin Chan, Carol Bishopric and Ron Popeski)