August 1, 2008 / 10:45 AM / in 10 years

IndyMac Bancorp files for Chapter 7 bankruptcy

NEW YORK (Reuters) - IndyMac Bancorp Inc IDMC.PK, once one of the largest U.S. mortgage lenders, has filed for bankruptcy protection, less than three weeks after being seized by federal regulators following a bank run by depositors.

The Pasadena, California-based company filed for Chapter 7 protection on Thursday with the U.S. bankruptcy court in Los Angeles, indicating it plans to liquidate. IndyMac expects the court to appoint a bankruptcy trustee promptly.

The filing, which was widely expected, does not affect the status of depositors in IndyMac Federal Bank FSB, the successor to IndyMac’s former banking unit after it was taken over by the Federal Deposit Insurance Corp last month.

Most deposits at IndyMac Federal Bank are insured up to $100,000. The bank also holds the former bank’s mortgages and other loans on its balance sheet, an IndyMac federal spokesman said. The FDIC is trying to sell IndyMac’s assets.

“Holding companies often go bankrupt once banking units get taken over because most assets and operations are at the bank level,” said Ralph “Chip” MacDonald, a partner at Jones Day in Atlanta. “They often file to reorganize, but there was probably no viable plan here.”

IndyMac Bancorp, the holding company, has between $50 million and $100 million of assets, between $100 million and $500 million of liabilities, and fewer than 50 creditors, according to the bankruptcy filing.

Chief Executive Michael Perry, the company’s sole remaining employee, said in a court filing he didn’t have information normally required to file for bankruptcy protection because the FDIC has sole possession of IndyMac’s books and records.

Perry has no involvement in IndyMac Federal’s operations.

The collapse of IndyMac was the largest U.S. banking failure since the 1980s savings-and-loan crisis. Regulators said IndyMac ended March with about $32 billion of assets and about $19 billion of deposits, most of which were insured.

IndyMac was the fifth of seven U.S. banking failures this year. FDIC Chairman Sheila Bair said last week she does not expect another failure of IndyMac’s size or larger.

The FDIC said IndyMac’s failure will cost the regulator’s $52.8 billion insurance fund about $4 billion to $8 billion.

RBC Capital Markets analyst Gerard Cassidy has said there could be 300 U.S. banking failures in the next three years.

LOANS PROVED RISKY

    IndyMac was the ninth-largest U.S. mortgage lender in 2007, according to the newsletter Inside Mortgage Finance.

    It was also the largest, publicly traded independent mortgage lender other than Countrywide Financial Corp, which was acquired last month 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 or assets.

    It collapsed after defaults mounted, and as tight capital markets caused losses on mortgages it couldn’t sell.

    The seizure came after panicked customers withdrew more than $1.3 billion of deposits over 11 business days.

    These withdrawals followed comments in late June by U.S. Sen. Charles Schumer questioning IndyMac’s survival.

    Continental Illinois National Bank & Trust Co., a Chicago lender, collapsed in May 1984, and is the largest U.S. banking failure. American Savings & Loan Association of Stockton, California, a September 1988 failure, was about the same size as IndyMac.

    IndyMac shares fell 46 percent, or 6 cents, to close at 7 cents on the Pink Sheets. They are expected to be worthless.

    Additional reporting by Julie Vorman in Bangalore; Editing by Dave Zimmerman and Braden Reddall

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