Happy New Year …
“On Wednesday December 31, 2008 the Federal Deposit Insurance Corporation (FDIC) signed a letter of intent to sell the banking operations of IndyMac Federal Bank, FSB, Pasadena, California, to a thrift holding company controlled by IMB Management Holdings LP, a limited partnership.”
“IMB Management Holdings LP and the investor group will inject a substantial amount of capital into a newly formed thrift holding company, which will own and operate IndyMac Federal. IMB Management Holdings LP, has agreed to bring in an experienced senior management team to run the day-to-day operations of the thrift.”
“The transaction is expected to close in late January or early February, at which time full details of the agreement will be provided.”
Skepticism? Who me?
Pardon me from being skeptical of both the government and the financial community these days, but as we have often seen in the past there is often a divergence between what appears on a press release and the reality of the situation.
Perception vs. Reality …
According to an FDIC press release, we see that the failed Indy Mac Bank is about to be purchased from its conservator, FDIC, by a group of distinguished, high-profile politically and socially well-connected financiers for approximately$13.9 BILLION.
Somehow I am having trouble seeing how this fire-price sale benefits either the taxpayers who are continuing to shoulder part of the risk of dodgy loans or the uninsured depositors who still are owed 50% of their uninsured assets.
But considering the financial acumen of its purchasers and their past abilities for financial manuevering, I am somewhat skeptical of the actual transaction.
Why is the FDIC withholding details of the agreement until after the deal closes? Doesn’t sound very transparent to me.
What is the true purchase price for IndyMac?
I have several questions regarding the form in which the purchase price was paid; was it with actual cash that was transferred to the FDIC or de-valued securities which were accepted by the government agency as cash equivalents?
Was the money to be retained by the FDIC for future rescue operations or was it transferred to the United States Treasury’s general account?
Was any part of the purchase price loaned by institutions which received TARP funding and were these funds totally or partially used to purchase the bank?
Were there any publicly undisclosed warrantees and representations that make this a conditional purchase?
Did the government provide any guarantees relative to the assets of the loan holdings?
And does the purchase of the bank by this consortium, lead to the formation of a broader bank holding company that might have a future call on TARP (Troubled Assets Relief Program) funds which could be used to cash-out investors who would then have executed the ultimate form of a no-cash leveraged buyout.
And why is the FDIC still claiming that they will still be on the hook for an estimated $8.5 billion to $9.4 billion charge against their Deposit Insurance Fund – including a payoff of $6.3 billion to the Federal Home Loan Bank of San Francisco plus a prepayment fee of $341.4 million?
The devil is in the details …
From the FDIC’s Fact Sheet …
HOW MUCH: SALE PRICE: $13.9 BILLION
“The FDIC, as Conservator for IndyMac FSB (“New IndyMac”), entered into a letter of intent to sell New IndyMac to IMB HoldCo LLC, a thrift holding company
controlled by IMB Management Holdings LP, a limited partnership, for approximately $13.9 billion. IMB HoldCo is owned by a consortium of private equity investors led by Steven T. Mnuchin of Dune Capital Management LP.”WHAT IS BEING SOLD:
- “New IndyMac consists of:
The retail bank headquartered in Pasadena, CA, with 33 branches located primarily in the Los Angeles MSA with approximately $6.5 billion in deposits;- A loan portfolio of $16 billion and a securities portfolio of $6.9 billion;
- A servicing platform with mortgage servicing rights (“MSRs”) representing an unpaid principal balance of $157.7 billion; and
- A reverse mortgage platform, Financial Freedom, with $1.5 billion of reverse
mortgages and MSRs representing an unpaid principal balance of $20.2 billion.”
RISK: LIMITED LOAN LOSS EXPOSURE WITH TAXPAYERS PICKING UP A PORTION OF THE LOAN LOSSES:
“The FDIC has agreed to share losses on a portfolio of qualifying loans with New
IndyMac assuming the first 20% of losses after which the FDIC will share losses
80/20 for the next 10% of losses and 95/5 thereafter.”“Under a participation structure on an approximately $2 billion portfolio of
construction and other loans, the FDIC will receive a majority of all cash flows
generated.”“The FDIC has agreed to continue to provide secured financing on transferred assets to
New IndyMac.”
CASH INJECTION: $1.3 BILLION
“When the transaction is closed, IMB HoldCo will capitalize New IndyMac with
approximately $1.3 billion in cash.”
THE UNINSURED PORTION OF DEPOSITS THAT WERE NOT COVERED BY FDIC INSURANCE: UNKNOWN
“Uninsured depositors will not be receiving an additional claims dividend at this time.”
The players …
- “IMB Management Holdings LP has formed IMB HoldCo LLC, a thrift holding company that will wholly own IndyMac FSB.
- It is led by Steven Mnuchin who will be Chairman and Chief Executive Officer of
IMB HoldCo. - Mr. Mnuchin is currently Chairman and Co-CEO of Dune Capital Management LP, which was founded in 2004. Prior to that he spent 17 years at Goldman Sachs Group Inc., where he was a partner and a member of the management Committee.
- Terry Laughlin will be the President and CEO of the new thrift acquiring New IndyMac. Most recently, Mr. Laughlin was Chairman and CEO of Merrill Lynch Bank & Trust, Co., F.S.B. Prior to joining Merrill Lynch in 2005, Mr. Laughlin
worked at Fleet Bank N.A. for 14 years where he was an Executive Vice President and was a member of the Executive Committee.
- It is led by Steven Mnuchin who will be Chairman and Chief Executive Officer of
invested over $12 billion in the industry.
markets.
aggregate asset value.
Merrill Lynch, if you remember, was complicit in creating the current financial disaster scenario having participated in every facet of the market from direct loan origination (First Franklin, Ownit Mortgage Solutions) to creating, packaging and selling toxic derivatives to willing investors.
All-in-all, a very wealthy, savvy group of sophisticated financial players who know how to maximize social, political and financial contacts for profit.
Why?
What I would really like to know is what is there of value in this transaction which will yield future profits considering that these investors could easily pick up distress loans for pennies on the dollars with less time and trouble?
I see value in IndyMac’s real estate. I see value in IndyMac’s technology platform. I see value in their servicing portfolio. But does this all add up to risking billions of dollars unless the actual price of the assets plus the growing business is much cheaper than we all assume.
If this is the case, why is the FDIC not continuing to operate the bank for future profit given their self-proclaimed expertise in banking matters?
I just wonder if their is a political connection to additional funding and business that is yet to be exploited? Although we will never know because IndyMac will remain a private entity until it is purchased by a far-larger institution sometime in the future.
The risky wild card …
Funny I should mention political connections. I am wondering what will happen to the new IndyMac bank should Fannie Mae force it to repurchase a significant amount of loans, said to be up to $1 billion, which were said to include early payment defaults and loans which contained fraudulent misrepresentations made by the borrower, loan agent, appraiser or other functionaries.
What is the final purchase price?
According to the Los Angeles Times …
“The FDIC's announcement said it had agreed to sell what was being called the New IndyMac to the investors group for $13.9 billion.”
“That price for IndyMac's assets was largely offset, however, by $12.3 billion that the FDIC was paying the investors to take over the bank's liabilities, including $6.5 billion in deposits.”
“The net effect, Barr said, was $1.6 billion to be paid by the investors to the FDIC's receivership.”
“That in turn was more than offset by the FDIC's agreement to shoulder nearly all the losses expected as the thrift works through the troubled portfolio of exotic mortgages.”
So the consortium’s real investment may be somewhere around $2.9 billion dollars (including the $1.3 billion dollar capital infusion) which is a mighty small price to pay for the control over such a large balance sheet.
What can YOU do?
One could take a wonderful lesson from John Paulson of Paulson & Company. Admittedly he is well-credentialed, extremely bright, socially and politically connected, but in addition to those attributes, he is able to balance risk against reward. Superbly demonstrated by making another fortune betting against the home mortgage market. The lesson is never to fall in love with your investments and be willing to make money both ways – capitalizing on both up markets and down markets.
While most of us will never make the type of money it takes to play in these high-stakes games, we can vicariously watch as the winners and losers tell us something about their methods and what it really takes to profit from today’s economic turmoil.
While we might never know the real purchase price of IndyMac or its true cost to the FDIC or Treasury Department, it is an amusing exercise to consider the possibilities and potentials of the situation.
Be well and be safe.
-- steve
Quote of the Day: “If you haven't got charity in your heart, you have the worst kind of heart trouble.” --Bob Hope
A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…
The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius
Reference Links:
FDIC: Press Releases - PR-1-2009 1/2/2009
IndyMac Bank buyers keep tight-lipped on plan for reviving failed thrift|Los Angeles Times
So are common shareholder's wiped out? From what I read they are, is that correct to assume?
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I do not know the answer to the question, I suggest you contact a stockbroker or the "investors relations" department of IndyMac bank. Normally, it takes a bankruptcy to formally wipe out the shareholders. And IndyMac was only judged unsound and placed in a conservatorship by the FDIC. I would assume that the bondholders have first call on any remaining equity ... possibly after the uninsured investors get back their deposits. It seems that this is a tricky legal question. The stock appears to be trading, so I am sure that someone out there thinks that there might be some value.
From what I can see, the ticker symbol changed from IMB to IDMCQ on 10/21/2008 and that the last updated listing using NASDAQ lookup said that the stock last traded at 14 cents on a volume of 6,616,906 shares. They were down as low as 9.35 cents.
You might want to check the status of any class action shareholder suits that might be out there. It was widely reported that government officials allegedly backdated documents which allowed the bank to meet its solvency test -- which might give rise to some form of further lawsuit.
I would also assume that the acquiring company would need to purchase at least 51% of the stock to achieve control -- but that might be what is keeping the price up? Who knows?
Sorry I can't be more specific, but thanks for reading my blog entry -- steve.
Posted by: Brian | January 04, 2009 at 04:10 PM