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Tue, Dec 30, 2008 - Page 10 News List

Equity, hedge funds circling IndyMac

WATERSHED AGREEMENT If the FDIC deal goes through, this would be among the first instances it has agreed to sell a bank-holding company to an unregulated firm


IndyMac Bancorp Inc, which failed in July after a run on its deposits, is close to being sold by the government to private equity and hedge fund firms, the New York Times reported, citing people briefed on the deal.

The buyers are J.C. Flowers & Co and Dune Capital Management, New York-based private equity firms, and the hedge fund firm Paulson & Co, the unidentified people told the newspaper. The sale by the Federal Deposit Insurance Corp (FDIC) would be among the first involving an unregulated firm buying a bank-holding company, the Times said in its Dealbook section.

The group would buy all of Pasadena, California-based IndyMac, including 33 branches, its reverse-mortgage unit and a US$176 billion loan-servicing portfolio, the newspaper said. An announcement could be made as soon as yesterday, the Times said.

“We have not made an announcement on a buyer outside of saying that we expect to make one by year’s end,” FDIC spokesman David Barr said in an e-mail on Sunday.

The FDIC seized the lender in July and had managed a successor called IndyMac Federal Bank FSB while seeking a buyer. Unpaid mortgages left the lender short of cash, triggering a run on deposits that drained US$1.3 billion in 11 days ending with the US seizure on July 11. The bank was among 25 to collapse this year amid losses from mortgages.

IndyMac’s failure will cost the FDIC’s deposit insurance fund about US$8.9 billion, the agency has said.

FDIC last month made it easier for investors, including private equities and hedge funds, to bid for deposits and assets of failing lenders. Changing the rules on bank ownership will help ensure “failing institutions are resolved in a manner that will result in the least cost to the Deposit Insurance Fund” by marketing assets to “known, qualified and interested bidders,” the agency said at the time.

J.C. Flowers had raised US$2.5 billion this year for a buyout fund that targets banks and other financial firms. In August, J. Christopher Flowers, the firm’s founder, won approval to buy First National Bank of Cainesville in rural Missouri state.

The bank, near the Iowa border in a town of 400 people, has US$14 million in assets and could be used as a vehicle to buy other troubled or failing institutions.

Paulson’s US$13 billion Advantage Plus fund, his largest fund that’s designed to bet on takeovers, restructurings and other corporate events, rose 33.5 percent this year through last month, Bloomberg data showed.

John Paulson in September was considering buying newly issued shares or convertible bonds in financial institutions that need capital, the Financial Times reported on Sept. 8.

Dune was co-founded by Steven Mnuchin after he left Soros Fund Management LLC in late 2004.

Mnuchin was head of a unit at Soros that provided financing, including mezzanine, asset-based and real-estate loans. The team also traded distressed debt.

Prior to joining Soros in 2003, Mnuchin, 46, was vice chairman of ESL Investments Inc, the hedge fund firm run by Edward Lampert. ESL is the largest holder of Sears Holdings Corp, on whose board Mnuchin sits.

Before ESL, Mnuchin spent 17 years at Goldman Sachs Group Inc, becoming a member of the firm’s management committee. He retired from Goldman at the end of 2002.

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