The Federal Deposit Insurance Corp. (FDIC) announced Friday that it had struck a deal to sell failed mortgage lender IndyMac to a group of private investment firms for $13.9 billion.
The buyers include buyout specialist JC Flowers & Co. and hedge fund Paulson & Co., which focuses on distressed assets, as well as the private investment firm managing computer mogul Michael Dell's fortune and a fund managed by financier George Soros. IMB Management Holdings, led by Steven Mnuchin, who is chair and co-CEO of Dune Capital Management, will control the bank. Terry Laughlin, who headed Merrill Lynch Bank & Trust, will serve as CEO of IndyMac.
The consortium is buying IndyMac's 33 branches, which still have $6.5 billion in deposits, its $157.7 billion loan servicing business, which collects mortgage payments and distributes them to investors, its $23 billion loan and securities portfolio, and its successful reverse-mortgage operation, Financial Freedom.
In its day IndyMac was the second-largest publicly traded independent mortgage lender, making way only for its sister operation Countrywide Financial Corporation, and specialised in making home loans that didn't require borrowers to document their income or make much of a down payment.
In return for the FDIC agreeing to limit the consortium's potential losses, IMB has promised the agency that it will continue to try to salvage mortgages and avoid foreclosures generally by modifying the interest rate. FDIC used IndyMac to experiment with the program, which it wants to push nationwide. The deal is expected to close by early February.
The FDIC, which seized the Pasadena, California-based institution in July after a bank run, was forced to open bidding to non-bank investors after failing to find a buyer among the lender's stronger rivals. The current market for selling assets is ''challenging,'' the agency said in the statement. Regulators closed 25 banks last year. (See: Another US bank fails: Regulators seize IndyMac Bancorp assets)
The investor group and the FDIC signed a letter of intent for the transaction, which the agency said in a fact sheet was valued at about $13.9 billion. The investors will inject about $1.3 billion in cash into the new company when the deal closes, later this month or in early February, the agency said. The FDIC agreed to share some losses on a portfolio of loans, with the new company assuming the first 20 per cent, the agency said.
''We will inject significant private capital into IndyMac so that it can once again effectively serve its customers and communities,'' Mnuchin said in a statement yesterday. IndyMac's failure will cost the FDIC, which is financed by fees paid by banks, about $8.5 billion to $9.4 billion, the agency said. The agency insures deposits at 8,384 institutions with $13.6 trillion of assets.
Deutsche Bank AG and Barclays Capital Inc., the investment banking unit of London-based Barclays Plc, advised the FDIC on the sale. Merrill Lynch & Co. advised the buyers.
In an effort to entice more potential buyers of failed lenders, the Office of the Comptroller of the Currency, the Federal Reserve and the FDIC in 2008 changed rules that may help spur investments by private-equity firms, a potential pool of capital for banks.