Report: Private equity firm wins bidding for IndyMac

A private equity firm led by former Goldman, Sachs & Co. executives is the likely buyer of IndyMac Bank, according to a report today on the Mortgage Lender Implode-O-Meter website:

The winner is New York-based Dune Capital Management, founded by two ex-Goldman partners. Dune’s Co-CEO Dan Neidich was known as the "dean" at Goldman of investing the firm's capital in real estate. Chairman and Co-CEO Steve Mnuchin comes from a family of Goldman bankers. The firm was seeded in 2004 by legendary hedge fund trader George Soros.

But the report, which is sourced to an IndyMac insider in Pasadena, also says negotiations were continuing and that "the deal still is fluid." It didn’t put a price tag on the transaction.

Dune would buy the entire bank, including the 33 branches, the reverse-mortgage unit and the $176-billion loan-servicing portfolio, the report says:

According to sources inside of Indy, part of the concession on the deal by the Federal Deposit Insurance Corp. involves their loan-modification program -- protecting it is an important political agenda for their leader Sheila Bair. The FDIC will eat the forgone interest and only sell the marked-down principal amount of the loan to the buyer.

Getting the bank as a whole is a sticking point for Dune and as a result the Indy insider said they’ve been crunching numbers this week to try to get Dune to pay more for the reverse mortgage arm. The FDIC doesn’t want egg on its face if the bid is too low, leaving room for the private equity firm to profit from the flip of an asset sale after the deal is done.

The report also says that Dune’s financing for the deal would be provided by a consortium of private equity firms led by Los Angeles-based giant Oaktree Capital Management.

Oaktree, a well-known investor in distressed assets, had been among the firms that looked over IndyMac’s books in spring, when the bank was desperately seeking a cash infusion. IndyMac was seized by the government in July.

The FDIC has previously said it expected to announce a deal for IndyMac by New Year’s Eve. For more on what's left of the bank, see this post from Tuesday.

-- Tom Petruno

Comments

[Hamir Bhatia]

FDIC and the government said that uninsured depositors were going to be OK
How come they talk about bailing out foreclosures and helping people who made mistakes on taking larger loans that they had no money.
Indymac took our money and now our deposits are frozen on their dime. How come no one is talking about that. Where is the accountability??? for an average US Citizen?
Mr. Schummer, we need you to step up. Everyone stepped up when failures were announced, bailouts were announced, banks did not have to give any accountabilty, automakers are being bailed out, no one is taking any money out of executives pockets, yet our money that is hard earned is at stake, FDIC with this sale will not lose a dime as they are first in line. WHAT ABOUT US? This is not fair - GOVERNMENT!

[fran quittel]

Let us just say that the FDIC, under Sheila Bair's leadership, needs to be taken to task with nothing short of a thorough housecleaning within that agency for a series of activities culminating in this latest attempt to squeeze this transaction in under the radar screen over a holiday weekend.

There is ample documentation to support this opinion, but to be fair, however, here are just a few examples of Ms. Bair's operation. In her appearance on CNBC on 10-12-08, Ms. Bair pronounced the need for parents of credit card-holding college students to receive an immediate alert when their kids exceeded limits. Her own agency, however, fails to uphold this same transparent standard for communications to depositors. Under the FDIC, member banks can regularly monitor your every transaction, re-rating you constantly to reduce THEIR risk, but under Ms. Bair, member banks are under no obligation to use that same technology to print on your monthly statement: "FDIC insurance limits are $250,000 for all accounts held at one institution under one tax ID and that limit reverts to $100,000 on 12-31-2009".

This twisting of responsibility is not new. In her 2007 speeches,while she clearly urged some caution, Ms. Bair still failed to exercise the requisite backbone and leadership that would have prevented the system from collapse. Was she only kowtowing to people in the know, making money, whose ship she was unwilling to sink? What prevented her from taking meaningful action?

Remarks By Sheila Bair Chairman, U.S. Federal Deposit Insurance Corporation; 2007 Risk Management and Allocation Conference, Paris, France, June 25, 2007

"When I became Chairman, the Basel II process was already steeped in controversy in the U.S., and had been for some time.

As the new head of the U.S. deposit insurer, it was obviously my obligation to find out what the controversy was all about. So I learned as much as I could as quickly as I could. Frankly, the more I learned, the more uncomfortable I became. But given the long history of the process … I wanted to find a way to move forward. And the many safeguards that had already been built into the proposed rule helped give me comfort that we were moving ahead in a controlled and responsible manner. That is why I scheduled a meeting and voted to publish the Notice of Proposed Rulemaking just a few months after I became Chairman.

Protecting the capital cushion

The rulemaking included safeguards against unconstrained reductions in risk-based capital requirements. My support for the proposed rule was contingent on these safeguards.

The importance of the safeguards is not a personal point of view, but an institutional one. While all bank regulators are responsible for safety and soundness, the FDIC explicitly insures over $4.2 trillion in deposits. We also have a statutory mandate to promote public confidence in the U.S. banking system.

A critical point that everyone must keep in mind is that the Basel II framework was developed and debated during a very benign period of economic growth and strong bank profitability.

The recent trouble in U.S. sub-prime mortgages is a clear reminder of how fast and decisively market conditions can change. It points to the danger of thinking that banks will have enough lead-time to ramp up their capital as economic conditions deteriorate.

Some fear we may be approaching a more general turning point in the credit cycle. As regulators, we want to ensure that banks have a strong enough capital cushion to withstand a downturn."

In short, for someone who was supposed to protect depositors and ensure the adequate funding of banks, Ms. Bair's performance deserves a failing grade. Her speeches regarding the soundness of US Banks, and her disregard of behavioral standards which allowed member banks to continue to delude depositors and get away with any and everything, throwing the responsibility onto the depositor, leave me speechless. This is not leadership by any acceptable standard at all.

[Misty]

Looking at the high list prices this bank has on its foreclosures, I don't think it is going to be selling much:

http://apps.indymacbank.com/Individuals/Realestate/Search.asp

[David Cohn]

Indymac Bank and the FDIC have misled many depositors regarding FDIC insurance. Shortly after the failure of Indymac Bank the FDIC revised its rules regarding qualifying beneficiaries and increased FDIC coverage from 100K to 250K per depositor in an effort to restore public confidence in the nation’s banking system. Unfortunately, for thousands of Indymac Bank depositors it was too little too late. The damage had already been done with thousands of depositors losing their hard earned life savings. It will be interesting to see if the FDIC pays back the money it took from the depositor’s accounts when the bank failed.

[Billingsgate]

Here we go again letting deal guys operate what's supposed to be a real business. The Goldman Sachs guys certainly know how to splice and dice a company - but actually run a nuts and bolts bank? Even if they sell for less money the FDIC should take a long-term view and let people buy these assets who will try to build a company that will benefit their respective communities and not just sliver off assets for a quick flip.

[Mayank Kishore]

I too was ripped off by Indymac Bank and the rep who had opened the account for me over the phone had misinformed me abut the FDIC insurance rules. Worst of all I became their customer just about a month before the collapse, only to lose a major portion of my entire life's savings. When so much is being done to help out people with bad mortgages and to bail out companies in this bad state of economy, why is the government not looking at us 10,000 depositors, where the sum involved is only $540 million - so less compared to some of their other bail outs ! Why did they never think about making the FDIC limit increase retroactive to the beginning of 2008 ? We are not gamblers, nor are we frauds...it's our hard earned money. Help us out GOVERNMENT !!