Private Equity Firms Are Near Deal to Buy IndyMac
IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms in a complex deal partly financed by the federal government, people involved in the deal said.
The Federal Deposit Insurance Corporation, along with a team of former Lehman Brothers bankers who are now with Deutsche Bank and Barclays Capital , has been engaged in the sale process since federal regulators declared IndyMac insolvent in July and seized the company.
The deal is in the final stages of negotiations, which are private, and could be announced as early as Monday, these people said, though they cautioned that the talks could still fall apart.
If a deal is reached, it would still need approval from the federal Office of Thrift Supervision before it can be completed.
At the time, the collapse of IndyMac ranked as one of the largest failures in F.D.I.C. history and was quickly followed by near failures and subsequent fire sales of the banking giants Wachovia and Washington Mutual.
The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.
The proposed deal is unusual because it is one of the first transactions involving unregulated private equity firms acquiring a majority stake in a bank holding company. Until now, private equity and hedge fund firms have taken only minority positions in struggling banks, like the Texas Pacific Group’s $2 billion investment in Washington Mutual earlier this year.
As banks began to fail, private equity firms initially came to the rescue, but they backed off over fears they would be subject to increased regulation.
The Federal Reserve chairman, Ben S. Bernanke, said in July that “private equity is a very good source of capital for banks.”
Then in September, the Federal Reserve eased regulations to allow private equity firms and hedge funds to acquire larger portions of bank holding companies and gave them more control over the banks, including representation on bank boards.
Previously, a private equity firm that held more than 24.9 percent of a bank was required to register as a bank holding company, which restricts an investor’s ability to make investments outside the banking industry and would subject the entire private equity firm to strict federal regulations.
Longtime foes of the private equity industry, like the Service Employees International Union, have raised concerns about allowing banks to be controlled by private investment firms. They argue that private equity firms would saddle banks with dangerous amounts of debt and exercise undue influence over lending practices.
In the proposed IndyMac deal, the consortium would buy the entire bank, including its 33 branches, reverse-mortgage unit and $176 billion loan-servicing portfolio.
The deal would be a coup for Dune Capital, founded in 2004 by Steven Mnuchin and Daniel Neidich, two former partners at Goldman Sachs , because they would pick up a well-known banking brand on the cheap.
J. C. Flowers, also led by a former Goldman partner, J. Christopher Flowers, focuses on financial firms, having tried to acquire the lender Sallie Mae last year. But the firm has struck few deals so far amid the banking crisis.
Paulson & Company, led by John Paulson, has been one of the biggest winners in the subprime mortgage crisis, having reaped billions of dollars by betting against risky home loans. Mr. Paulson recently indicated to investors in his hedge funds that he was prepared to start buying up low-price debt like prime mortgages and investing in financial institutions.
When IndyMac failed, more than 130 F.D.I.C. employees swooped in to prepare the bank to reopen under government supervision. The bank was founded in 1985 by Angelo R. Mozilo and David S. Loeb, who also founded Countrywide Financial.
IndyMac once specialized in “alt-A” home loans, which often did not require borrowers to fully document income or assets. It collapsed after defaults mounted and as tight capital markets caused losses on mortgages it couldn’t sell.
The seizure came after panicked customers withdrew more than $1.3 billion of deposits over 11 business days. The withdrawals came after comments in late June by Senator Charles E. Schumer, Democrat of New York, questioning IndyMac’s health.