(AFP) – Jul 13, 2008
LOS ANGELES (AFP) — Federally-seized IndyMac Bank was due to reopen Monday after suffering one of the biggest bank closures in US history, as the troubled US mortgage industry struggles to stem further meltdown.
The regulatory Office of Thrift Supervision (OTS) announced Friday it had placed the California-based bank, worth an estimated 32 billion dollars, under the control of the Federal Deposit Insurance Corporation (FDIC).
The mortgage lender, which will reopen as IndyMac Federal Bank, marked the largest bank failure in a year of mortgage and foreclosure crisis highlighted by a surge in defaults and a plunge in housing prices which are rippling through the US economy.
The FDIC stressed Saturday that it was seeking to return the bank to private operation within a few months.
"When we reopen Monday, we will begin the process of marketing this bank to try to get it back into the private sector. We expect that to take about 90 days," FDIC spokesman David Barr said on CNN television.
Barr said the FDIC had already fielded more than 9,000 calls from panicky customers wondering if their money was safe.
FDIC guarantees 100 percent of personal investments up to 100,000 dollars.
The bank was the fifth FDIC-insured failure of the year, and is expected to cost the FDIC between four and eight billion dollars, wiping out as much as 10 percent of its 53-billion-dollar Deposit Insurance Fund.
OTS regulators said the closure was prompted by withdrawals of 1.3 billion dollars made by the bank's customers since June, when doubts were raised publicly about the bank's long-term viability.
"The institution failed today due to a liquidity crisis," OTS director John Reich said Friday.
The decision had been anticipated after IndyMac's share price collapsed. The bank's stock, which traded at more than 28 dollars per share one year ago, closed Friday at just 28 cents per share.
The company announced in the past week it had halted lending and was planning to shed 3,800 jobs, more than half of its work force.
At its peak in 2006, the company, which had been reeling under the foreclosure crisis, employed 10,000 people. The latest layoffs would have reduced the work force to around 3,400.
IndyMac's woes came as US mortgage finance giants Fannie Mae and Freddie Mac were being pushed to the brink as a meltdown in their share prices in the past week raised fears of a government bailout.
The government-chartered, shareholder-owned Fannie Mae and Freddie Mac underpin some five trillion dollars in home loans.
In volatile trade Friday, shares plunged some 50 percent for both firms before a partial recovery. Freddie Mac ended with a loss of three percent and Fannie was down 22 percent, but both have lost around 75 percent since the start of the year.
The two firms said separately that they were "adequately capitalized" and had ample liquidity despite swirling market fears, while Treasury Secretary Henry Paulson on Friday offered no indication of imminent intervention.
"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," Paulson said.
IndyMac bank had been sent into freefall after comments by Democratic Senator Charles Schumer last month concerning the bank's health prompted a flood of withdrawals by panicked customers.
Schumer had sent letters to federal regulators, quoted in the Wall Street Journal, saying he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac."
The OTS's Reich said in the newspaper that Schumer's comments gave the bank "a heart attack."
Schumer quickly responded: "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," the Journal quoted him as saying.
Reports said IndyMac's collapse was the second biggest in US history behind the 1984 failure of the 40-billion-dollar Continental Illinois Bank.
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