Saturday, January 03, 2009

IndyMac Bank has buyers

Correction --- Monday, January 5 --- While the opinions expressed in the following post still stand, in fact even more so, the numbers do not. Saturday media reported that the "value" of the IndyMac deal was $13.9 billion. As said below, that was "startling" and for good reason. "Value" was not referring to the price paid. Subsequent reports pointed out that the investors price was to make a $1.3 billion cash infusion into the bank upon deal closing. "Value" was the expression used for the FDIC's value of the assets immediately after closing. What that refers to is that approximately $25 billion of assets on IndyMac's book today will be written down to $13.9 billion at closing with the FDIC eating the difference. That's huge, and all the more reason to suggest that this is a good deal for the investors, or just highway robbery.

One can be sure that the partnership of seven private equity and hedge funds that have offered to buy IndyMac Bank from the FDIC is getting a good deal. They are a top tier group of investors that know value and know financial services. On the surface $13.9 billion for the failed mortgage lender was startling. The little that is known of what must be a complex deal agreement suggests that the FDIC is still assuming considerable risk on the mortgage book and that the buyers are getting a deposit franchise, a reasonably sized mortgage servicing operation and a reverse mortgage company. The deal is still just a letter of intent, which allows more negotiation before closing, negotiation that likely will have the buyers with more clout than the seller.

Despite the probability that the big private money is going to do well, and this gets somewhat tiring, there is some good news here. First, any deal activity in the financial sector, and more specifically the mortgage business, is the sign of a pulse. Second, that this group of investors sees an opportunity may tempt others to reinvest in financial services equities, and like it or not a healing financial services sector will be good for U.S. businesses. Third, it may lead to a more cynical look at the financial press which tars every banking firm with problems with the same brush. IndyMac Bank was, believe it or not, a reasonably well run bank. It was an Alt-A lender, not subprime. They had, by mortgage bank standards, a conservative balance sheet. They admittedly originated some of those pick your payments type of mortgages but their share of that market was just 4% of what Washington Mutual had and less than 3% of Wachovia's share. They were in for a tough slog, and may or may not have been able to avoid bankruptcy, but they were destroyed by a liquidity run on the bank that was started by Senator Schumer's alarmist attention seeking comments to the press about what he heard in confidential briefings.

It could be that this partnership of seven is buying a good franchise.


Post a Comment

<< Home