by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Depositors are fleeing because legislators are pressing.
But depositors may have been spooked by a letter late last week from Sen. Charles E. Schumer (D-N.Y.) to the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Federal Home Loan Bank of San Francisco, saying he was “concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers.”
IndyMac Bank is shrinking. From their corporate blog:
As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and “feed” growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital.
Damn ! Another good bunch of people jobless.
This isn’t the big one. Expect a BIG bank to go belly up later this year. I’m completely guessing but my money would be on WaMu or Wachovia.
Rob Lusk says:
Wachovia? I’m in Charlotte. That would be a big problem here. I could see WAMU due to thier heavy exposure to Neg AMs, 100% 2nds, etc.
What causes you to suggest Wachovia?
July 7, 2008 — 6:00 pm
Brian Brady says:
“What causes you to suggest Wachovia?”
heavy exposure to Neg AMs, 100% 2nds, etc
July 7, 2008 — 6:06 pm
Hunter Jackson says:
Indymac holds the loan on my house…now we know why. Just kidding!
July 7, 2008 — 6:16 pm
David Shafer says:
Will the Fed’s allow a big bank to go belly up? I bet not.
July 7, 2008 — 6:30 pm
Tom Vanderwell says:
I think the answer is NO, they will not let a big bank go belly up. The questions, in my mind are:
1. How big is too big to fail?
2. What forced marriages will be arranged in the near future (maybe are already being arranged?)
It’s going to get interesting…..
Tom
July 7, 2008 — 6:56 pm
Eric Bramlett says:
Definitely not going to improve consumer confidence. However, we felt the affects of this a few months ago. IndyMac eased themselves out of the market by removing any competitive products a couple of months back. The brokers I work with haven’t gone to them in that period of time.
July 7, 2008 — 7:11 pm
Brian Brady says:
“What forced marriages will be arranged in the near future (maybe are already being arranged?)”
Which maiden still has enough dowry to handle the drunken bachelors? I think Wells still wants to keep her virtue
July 7, 2008 — 8:26 pm
Robert Kerr says:
Look at the reset schedules for this year and next. Look at where home prices and residual equity are headed. Look at where NoDs and NoSs are headed.
It’s all bad.
Every major metric is bad and getting worse. I don’t recall any time in my life when it was like this. There were always a handful of good, or at least ambiguous, indicators, but not this time.
There’s a ton more of bad news coming down the line for financials. Did you see what happened to FNM and FRE today? Ouch.
Between WaMu and Wachovia, WaMu looks to me in the worse shape, even with the $7B infusion from TPG 3 mos. ago.
July 7, 2008 — 8:27 pm
James Malanowski says:
A little farther down in the release reads …
“In closing our forward mortgage business, we will refocus our lending efforts on supporting and building within regulatory constraints Financial Freedom, our reverse mortgage unit (FHA production only), and on continuing the retention activities associated with our servicing portfolio. Combined, we currently expect these units to produce roughly $5 billion to $10 billion per year of new FHA/GSE loans. Thus, our core business model will include (1) Financial Freedom, one of the largest reverse mortgage lenders in the Country; (2) a top ten mortgage loan servicing operation, with a solid retention production unit; and (3) a Southern California retail bank branch network, including 33 branches and roughly $18 billion in deposits, of which over 96% is fully covered by FDIC insurance. In addition, when this housing and mortgage crisis abates and we return to health, we would also hope to be an investor in mortgage loans and mortgage-backed securities and might re-enter the national forward mortgage production business with a low-cost, non-commissioned-based business model.”
So Indymac BANK is not closing, only their retail and wholesale lending divisions. The banking division is FDIC insured and there is no reason for people to worry about their deposits.
It is definitely a sad day for those who are employed by those divisions, but in the long run, I hope it will bring Indymac out of the hole they’re in.
– James
July 7, 2008 — 9:21 pm
Brian Brady says:
“It is definitely a sad day for those who are employed by those divisions”
Good Lord, yes. Talented folks there. I think I funded my first deal with them in 1997; a 70% SIVA Jumbo $600,000 loan amount- my largest funding at that point)
July 7, 2008 — 10:54 pm
Michael Cook says:
As someone that works at Wachovia, a Bankrupcty would surprise me. For all of our exposure, we have tons of deposits and other businesses to cover the billions of losses we have already faced. Not to mentioned capital raising is still a viable option, though unattractive, the markets still seem to open.
I will defintely keep my eyes open though. The market seems ripe for buyouts and the rumor mill has been quite active.
July 8, 2008 — 8:50 am
Brian Brady says:
Michael,
Who can buy anything? I can only imagine Wells or US Bank as an acquirer today. Are there any banks with the operational and financial capacity to handle another emergency acquisition?
July 8, 2008 — 9:49 am
Sean Purcell says:
Eric is dead on. Indy Mac removed themselves from the market months ago. It would have been nice to see them reign in the majority of what they were doing and focus on their alt-a conforming stuff – or even compete for government loans. Like Brian said, lots of good folks over there. But my guess is, it was too late.
Again, the main stream press won’t discuss it (doesn’t understand it?), but the books for these lenders that played heavily with neg-ams is cooked and the problems they see are only the tops of ice-bergs.
My vote for major failure goes to Wamu. Wachovia made a very poor decision in acquiring Golden West (World Savings), but not fatal. They are too strong.
But is Wamu is too big to let fail? I remember discussing with Brian a Chrsyler style bail-out of Countrywide in the spring of last year. The financial black-ops team had a better idea via B of A. Got to go with Brian now and wonder if there are any maidens left willing to open their… coffers. My vote is “no”. But does the Fed have the pull (or the huevos) to perform a Chrysler style redemption?
Is anyone watching Downey Savings? I don’t think they are too big to fail, but it is possible they will: very big neg-am portfolio, law suits underway from employees, losses piling up. I guess all those 4 point bribes to unscrupulous brokers wasn’t the best business decision for any of these investors.
July 8, 2008 — 3:17 pm
Dave Barnes says:
And, I should care, why?
July 8, 2008 — 7:18 pm
Bob says:
IMB won’t stick around. They will be parted out for scrap. The problem with the acquisition though is that those are leveraged deposits, so the thrift will be forced on a Wells by the Feds. Their turn to take one for the team.
WaMu is the next big one to go.
Yes. And as soon as the bailout bill is enacted, they’ll have the tool. Wamu’s deposits are the reward for whoever takes the hit, but the hit will be reduced as WaMu’s loser loans are dished off to the Feds via the bailout bill. This is the whole reason the bill came about.
See Robert Kerr’s remarks.
July 8, 2008 — 9:22 pm
Michael Cook says:
Several European and Asian banks have been on the hunt for increased US presence. HSBC and BarClay’s (sp?) seem to be in strong financial shape. Combine that with the weak dollar and they might be able to get a steal.
July 9, 2008 — 9:16 am
Brian Brady says:
“Several European and Asian banks have been on the hunt for increased US presence.”
Duh. What was I thinking? I completely forgot about foreign banks. Thanks, Michael
July 9, 2008 — 10:19 am
Bob says:
I would guess that the topic has come up during the present G8 meetings.
July 9, 2008 — 10:35 am
Tom Vanderwell says:
I completely forgot about foreign banks
Brian, I’m not sure you forgot about it so much as I think most of us don’t like the idea of banks from another country buying our banks? I know I wouldn’t be real excited working for the First National Bank of Japan…..
Tom
July 9, 2008 — 10:53 am
Bob says:
>”I think most of us don’t like the idea of banks from another country buying our banks?”
Foreign ownership of US banks isn’t limited to foreign banks. Think Citi.
July 9, 2008 — 1:06 pm
Brian Brady says:
and now…IMB is dead:
http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story?track=rss
July 11, 2008 — 4:45 pm
James Malanowski says:
Thank you Mr. Schumer.
– James
July 11, 2008 — 4:50 pm
Brian Brady says:
“Thank you Mr. Schumer.”
Yep.
July 12, 2008 — 9:06 am
Michael Cook says:
Tom,
Would you rather work for the First National Bank of Japan or the work the unemployment line for a couple of years? Lesser of two evils at worst, interesting opportunity at best.
Brian,
Great timing on this article. A week before they shut the doors.
July 12, 2008 — 10:22 am