OneWest Bank Group completed it’s purchase of the failed IndyMac Federal Bank today. OneWest Bank is the subsidiary of the newly created bank holding company, IMB HoldCo LLC. IMB HoldCo LLC was hand picked by the FDIC to take over when the failure was announced back in January.

OneWest Bank’s Purchase Smells Funny

When the FDIC shut IndyMac all hell broker loose if you can remember that far back. In the hurry to get things back to normal, the government announced a buyer (OneWest Bank) for the failed thrift but it seems they have had some difficulty closing the deal. It has been roughly 2.5 months since the shut down and only now is the purchase being finalized.

I guess the fact they had to cobble together a bunch of private equity big-wigs and promise them a huge amount of government support. The private investors are listed to include Dune Capital, LLC, J.C. Flowers & Co., Paulson & Co., MSD Capital, L.P., Stone Point Capital, SSP Offshore LLC and SILAR MCF-1 LLC….a veritable “Who’s Who” of Wall Street Fat Cats.

These Wall Street insiders obviously know how to negotiate. Case in point: This deal gives the losses to the government…read “you and me as taxpayers”…allowing them to keep any profits.

The FDIC Fact Sheet states.

“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.”

If I read this right…Uncle Sam takes on 100% of the first 20% of loan losses, then takes 80% of the next 10% and finally takes 95% of any and all losses after that.

Wow!

Uncle Sam got his butt kicked on that one. The Fact sheet states “Barclays Capital and Deutsched Bank Securities served as financial advisors to the FDIC.” If this was the deal they negotiated, the FDIC got schooled by their own advisors.

Now we know who gets to pay the bad debts for OneWest Bank. Now let’s look at what they get to keep in terms of assets and income.

The Fact Sheet states,

  • “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.”

    • If I read this right, the newly formed, Wall Street insider owned, OneWest Bank gets to keep billions in assets. Let’s say under the most ridiculous reading of their balance sheet, that all the $16 loan portfolio produced now real revenue. Impossible, I know, but I said I’m being ridiculous.

    Let’s also say the $157 billion the mortgage servicing they couldn’t sell to anyone…even for a nickel. Silly I know since servicing sells for about 25 basis points on the total, but as I said I’m being crazy.

    Let’s also say nobody wanted Financial Freedom and they could make a dime from that huger servicing portfolio.

    The still OneWest Bank worth the $6.9 Billion in securities. Securities are like stocks and if I own $100 of IBM stock, I put on my balance sheet at $100 since stocks can be converted to cash on demand.

    But once again let’s be crazy and cut that number in half…now we are down to $3.45 billion.

    Now let’s look at future income.

    The fact sheet doesn’t address the future income of OneWest Bank other than to say, “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.” So I’ll assume all profits other than construction loans go to the bank as I don’t see any government lien on them.

    So now we must ask, “What did these Wall Street insider have to pay to get their entity worth an instant $3.45 Billion (under worst case estimates) plus most of the future income now called OneWest Bank?”

    They paid a paltry $1.3 billion in cash to close the deal!

    So this is how the government negotiates with our money. It’s almost like they were drunk or something.

    Some might criticize my conclusions saying this private investor consortium is taking a big risk buying a failed California thrift. They might point to a deteriorating California housing and lending market and say the future could produce big losses for OneWest Bank.

    All I can say to them is, “Don’t be naive” and I’ll be back soon to say, “I told you so”.

    Good Luck!

    UPDATE Sept. 2009: I’m back to gloat about my prediction. The LATimes reported on Aug. 19th, 2009,
    “OneWest Bank of Pasadena, the savings bank that arose from the ashes of failed mortgage giant IndyMac Bancorp, reported a solid profit of $182 million for the second quarter, its first full quarter under ownership by private investors.”

    Also a side note…OneWest Bank is among possible TARP fund reciepients too. OneWest Bank is slated to get $668.4 million more in taxpayer funds through the Making Home Affordable Program.

    If it wasn’t such an aggregeous money grab, I’d have to laugh…

    Update December 8, 2009: A report in the NY Post says,

    “A Long Island couple is home free after an outraged judge gave them an amazing Thanksgiving present — canceling their debt to ruthless bankers trying to toss them out on the street.

    Suffolk Judge Jeffrey Spinner wiped out $525,000 in mortgage payments demanded by a California bank, blasting its “harsh, repugnant, shocking and repulsive” acts.”

    Don’t start cheering yet…I’m sure this bank will appeal.

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