The Pasadena, Calif. – based IndyMac Bancorp Inc., (IMB) – one of the largest residential mortgage lenders in the U.S which was clobbered by write-downs on mortgage-backed securities and pressures of tighter credit ; on Friday – saw its assets seized by the Office of Thrift Supervision (OTS), becoming this way: the second largest regulated financial institution to close in U.S. history. The Federal Deposit Insurance Corporation (FDIC) was named Receiver.
Last week, IndyMac Bancorp Inc., appeared to edge closer to a meltdown. In a brutally frank letter to shareholders, Chief Executive Michael W. Perry pointed out that IndyMac had not succeeded in raising additional capital and did not expect to succeed until the housing and mortgage markets became more stable.
“In light of the current environment and related deterioration of our financial position, Perry wrote, – since last quarter, we have been working closely with our federal banking regulators with respect to the actions that they and we must take to meet our mutual goal of keeping IndyMac safe and sound through this crisis period”.
Perry warned that he expected IMB’s second-quarter loss to be even wider than its loss in the first quarter. [Via Businesswire]
However, what really signaled that a collapse was getting closer if not imminent, was the fact that the bank ceased taking loan applications, and in addition stopped accepting new loan submissions in its main mortgage lending divisions which essentially meant a total freeze of the co’s prime business.
On June 26, AP reported that Sen. Charles Schumer, D-N.Y., sent letters to the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco. In the letter Sen. Schumer said: “The possible collapse of big mortgage lender IndyMac Bancorp Inc. poses significant financial risks to its borrowers and depositors, and regulators may not be ready to intervene to protect them”.
The banking regulator said it closed IndyMac as nervous depositors began a run on the lender. According to FT, in the 11 days after the release of the letter, depositors withdrew more than $1.3bn from their accounts, with about $100m withdrawn every day. “This institution failed today due to a liquidity crisis,” John Reich, director of the OTS, said.
Mr Schumer said in a statement on Friday night: ”IndyMac’s troubles….were caused by practices that began and persisted over the last several years, not by anything that happened in the last few days.”
IndyMac had more than $32 billion in assets as of March 31. The FDIC estimated that IndyMac’s resolution is expected to be among the most expensive rescues of its insured institutions, costing between $4 billion and $8 billion.