IndyMac: 2nd Largest US Financial Firm To Fail
A: Well, here we go again. In a crisis of confidence, we just experienced another 'run' on a bank as IndyMac was shut down by the FDIC, and assets seized. With IMB stock trading at $0.28 at the close on Friday and the company's credit rating cut by S&P this past Wednesday to just a few levels above default, this news is not as shocking as one may think. However, the media distribution of this news will not help consumers confidence in our banks and this can not possibly come at a worse time. The last thing we need right now, is a deepening crisis of confidence sparking additional 'runs' on banks just as Fannie & Freddie face the music. It's going to be a wild week.
The news via Bloomberg:
IndyMac Bancorp Inc. became the second- biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash. "This institution failed due to a liquidity crisis," OTS Director John Reich said in the statement.Some are blaming remarks by Schumer as causing the 'run' on IndyMac, leading to the liquidity crisis. I do not think this is fair blame. IndyMac's executives, loose lending standards, and toxic assets are to blame for the mess that they are in, NOT someone acknowledging the distressed condition of the company.The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank FSB, starting next week, the Office of Thrift Supervision said in an e-mail yesterday. The Pasadena, California-based lender specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. The demise adds to the crisis caused by the subprime collapse and may mean regulators will have to raise more money to support the federal deposit insurance program that repays customers when a bank fails.
The question is, with this cockroach squashed how many more are hiding behind the walls? Its fairly clear, that 2008 & 2009 will see more bank failures and chances are rising that the names of the institutions that fail, are well known ones.
Below is a pic of a woman taking out funds from an IndyMac ATM machine, with a nearby corporate advertisement stating, "YOU CAN COUNT ON US"; how ironic!
IndyMac's total assets as of the end of March was $32.01 Billion. They had $11.9 Billion in loans held, and $184 Billion in loans serviced. The FDIC is now in control of the assets and customers with individual accounts exceeding the $100,000 guaranteed limit will have a very rude awakening; the FDIC has stated that it will pay 50% of any amount that is not insured. As Mish points out:
Anyone over the FDIC limit at IndyMac can kiss it goodbye. There has been ample warning. Alt-A loans (AKA Liar Loans) and ridiculous lending policies did this company in.Photo via OC RegisterWe are very close to the point where any bank can fail at any time. If you are over the FDIC limit at Wachovia or Washington Mutual (or for that matter anywhere), do something about it immediately if not sooner.
