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US agency seizes IndyMac Bank assets

Federal regulators seized IndyMac Bank’s assets on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

IndyMac Bank is the largest government-regulated savings and loan to fail and the second-largest financial institution to close in US history, regulators said.

The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

Other bank services, such as online banking and phone banking were scheduled to be made available tomorrow.

“This institution failed today due to a liquidity crisis,” OTS Director John Reich said.

The lender’s failure came the same day that financial markets plunged when investors tried to gauge whether the government would have to save mortgage giants Fannie Mae and Freddie Mac.

Shares of Fannie and Freddie dropped to 17-year lows before the stocks recovered somewhat. Wall Street is growing more convinced that the government will have to bail out the country’s biggest mortgage financiers, whose failure could deal a tremendous blow to the already staggering economy.

The FDIC estimated that its takeover of IndyMac would cost between US$4 billion and US$8 billion.

IndyMac’s collapse is second only to that of Continental Illinois National Bank, which had nearly US$40 billion in assets when it failed in 1984, according to the FDIC.

Pasadena, California-based IndyMac Bancorp Inc, the holding company for IndyMac Bank, has been struggling to raise capital as the housing slump deepens.

IndyMac had US$32.01 billion in assets as of March 31.

A spokesman for the lender referred media queries to the FDIC.

The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Senator Charles Schumer of New York, urging several bank regulatory agencies to take steps to prevent IndyMac’s collapse.

In the 11 days that followed the letter’s release, depositors took out more than US$1.3 billion.

In a statement on Friday, Schumer said IndyMac’s failure was due to long-standing practices by the bank, not recent events.

“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Schumer said. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”

The FDIC planned to reopen the bank tomorrow as IndyMac Federal Bank, FSB.

Deposits are insured by up to US$100,000 per depositor. As of March 31, IndyMac had total deposits of US$19.06 billion.

During a conference call with reporters, FDIC Chairman Sheila Bair said the agency would cover all insured deposits and then try to recover its costs by selling IndyMac’s assets.

“We anticipate trying to market the institution as a whole bank,” Bair said. “How much money we derive from that will depend on who gets paid what.”

Also See: NYSE: Renewed bank, mortgage jitters hit Wall Street

Also See: US Senate approves rescue bill
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