(Recasts; adds Mnuchin, FDIC, Talbott comments, details of
By Karey Wutkowski and Megan Davies
WASHINGTON/NEW YORK Jan 2 The assets of failed
U.S. mortgage lender IndyMac are being bought by a group of
private equity and hedge fund firms, including Dune Capital
Management and J.C. Flowers & Co, which are putting up $1.3
billion in cash.
The Federal Deposit Insurance Corp, which has run IndyMac
since its failure on July 11, valued the sale to the IMB HoldCo
consortium at $13.9 billion.
Neither the investors nor the agency would provide
immediate details on financing the rest of the deal, which the
FDIC expects to close in late January or early February.
The investor group is led by Steve Mnuchin, the chairman of
Dune Capital and a former Goldman Sachs executive; buyout
artist Christopher Flowers, and hedge fund operator John
Paulson, who gained billions of dollars betting that U.S.
housing prices would slide and take mortgage-backed securities
down with them.
Affiliates of billionaire investor George Soros and Michael
Dell, the chief executive of computer maker Dell Inc DELL.O,
are also involved with the consortium buying IndyMac.
"We have assembled a group of experienced private investors
in financial services to acquire the former IndyMac and operate
it under new management with extensive banking experience,"
Mnuchin said in a statement on Friday.
The purchase will include IndyMac's 33 branches, mostly in
the Los Angeles area, with about $6.5 billion in deposits, as
well as loan and securities portfolios of about $23 billion.
IMB HoldCo is also buying a mortgage servicing portfolio with
unpaid principal balances of more than $175 billion.
Terry Laughlin, who previously headed Merrill Lynch Bank &
Trust, will serve as chief executive of IndyMac.
"The current economic climate is challenging for selling
assets, but this agreement achieves the goals that were set out
by the chairman and board when the FDIC was named conservator
of IndyMac in July," FDIC Deputy Director James Wigand said in
IndyMac had had $32 billion in assets when it was seized in
July. At the time it was the third-largest U.S. bank failure
until Washington Mutual's closure in September set a new
record, with about $307 billion of assets. In all, 25 U.S.
banks failed in 2008.
IndyMac was the second-ranked publicly traded independent
mortgage lender after Countrywide Financial Corp, which was
acquired last year by Bank of America Corp (BAC.N).
Founded in 1985 by Angelo Mozilo and David Loeb, who also
founded Countrywide, IndyMac once specialized in "Alt-A" home
loans, which often didn't require borrowers to fully document
income. It collapsed after loan defaults mounted, and tight
capital markets caused losses on mortgages it could not sell.
SHARING THE LOSS
As part of the deal, the FDIC entered into a loss-sharing
agreement with IMB HoldCo. IndyMac will assume the first 20
percent of losses on a portfolio of "qualifying loans," after
which the FDIC will assume 80 percent on the next 10 percent of
losses, and 95 percent on losses thereafter.
The resolution of IndyMac is expected to cost the FDIC's
insurance fund between $8.5 billion and $9.4 billion. The
industry-funded reserve to back deposits fell 24 percent in the
third quarter of 2008 to $34.6 billion, the latest fund total
The Office of Thrift Supervision said on Friday that it has
given IMB HoldCo preliminary clearance to operate IndyMac as a
federal savings association under OTS supervision.
After its failure, FDIC Chairman Sheila Bair used IndyMac
as a test bed to demonstrate that lenders could modify
distressed home loans in a way that benefits the financial
institution, investors and homeowners. The new IndyMac will
continue that modification program, the FDIC said.
Bair has urged the U.S. Treasury to use about $24 billion
in federal funds for incentives to get lenders to adopt similar
loan modification plans nationally, but has been met with
resistance from Bush administration officials.
The FDIC said the loan modification plan at IndyMac has
provided total estimated savings of about $423 million.
PRIVATE EQUITY DEAL
The FDIC said it was not the first time private equity
firms have participated in acquiring failed banks. In the early
1990s, the FDIC tapped private equity sources when it sold New
Bank of New England and CrossLand Federal Savings Bank.
"Allowing hedge funds to own a bank is a sign of the tough
economic times and the need for creativity in turning the
economy around," said Scott Talbott, chief of government
affairs for the Financial Services Roundtable, an industry
group. "Federal banking regulators will continue to consider
hedge funds as possible buyers of other failing financial
The $13.9 billion deal is also an indication that the
private equity industry is finding ways to invest capital
despite the lack of leverage. The industry has been hammered by
the credit crisis which hit buyout firms' ability to buy
companies through the traditional leveraged buyout structure.
Relaxation of some rules by U.S. regulators has made it
easier for private equity firms to invest in banks, with
Flowers being cleared in August by the Office of the
Comptroller of the Currency to buy a small bank in Missouri.
(Additional reporting by Jon Stempel and Dan Wilchins in New
York; Editing by Matthew Lewis and Tim Dobbyn)