Indymac Case Analysis [PDF]

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INDYMAC Case study



SUBMITTED TO: DIVYA PAUDEL Course faciliator



SUBMITTED BY: KIRAN RIMAL .



INDYMAC



INDYMAC



Summary Beginning of the end of indymac So at that point the OTS made the recommendation to the FDIC to take over IndyMac, and essentially move IndyMac bank out into bankruptcy as a shell." The bank moved as many of the bad assets as it possibly could into the receivership, and moved all the good assets into the conservatory. Phoenix Rising From Ashes Over the last couple of years, the FDIC has taken over about 50 different banks, and every single one of them with the exception of IndyMac has gone directly into a receivership, so they basically just took the bank over, got rid of all the bad assets and then just basically liquidated the company," Wright explains. When asked to describe the new bank, Wright says OneWest Bank is the phoenix that is rising from the ashes of IndyMac, and it will be a different bank with a different direction. This is the approach that the FDIC took across the board. Security Team Impacted by Takeover In Wright's area, his team successfully combined IT Security, Compliance and Identity and Access Management to become more efficient and to streamline existing processes.



Our new owners bring a wealth of banking knowledge, expertise and a proven track record of success that we can all look forward to in the future as OneWest Bank matures, finds its course and emerges as a leader in the space," he says.



Now Wright's team and the other areas of the bank are working on developing individual employee growth, career management and compensation plans that are in line with the workers responsibilities. Added security risk answered



INDYMAC When FDIC took over the security team demand to access the all the environmental risk as well as associated significant risk factor. New direction for bank The bank's model now is to: Acquire new banks, grow out the banking business, and grow out the loan servicing business. As part of the bank's loan servicing business, it is looking to the FDIC when it goes through bank closures, to offer the chance to bid on the loan portfolios that are considered good assets. This will require OneWest Bank to retain data, including all the data from IndyMac Bank's history for the next 10 years, including the applications that would access the data. Automated Tools Help Workload "We have to really understand our landscape, and threat modeling tools have really given us that ability to understand what our landscape is. For Wright's department, the transition to the brick and mortar bank and the move away from a mortgage bank has made the job a bit easier, mainly because the new owners are more risk averse. "Using our existing tools to help us with that integration, understanding what the other bank has, will help us know their landscape very quickly and get them integrated faster into our environment."



What we can learn from indymac…. The summertime collapse of IndyMac represented the second-largest U.S. bank failure ever. IndyMac, a $32 billion federal savings bank, based in Pasadena, Calif., was the fifth-largest mortgage lender in the country. Locally, Arkansas experienced its first bank failure in seven years when the Comptroller of the Currency closed ANB Financial of Bentonville on May 9.



INDYMAC Both failures were widely publicized due to the banks' size and overall business strategies. According to published reports, IndyMac suffered a liquidity crisis caused by a deposit run. IndyMac was a large originator of alt-A mortgages, which were often made to borrowers with poor credit. As the secondary market for these loans collapsed, the bank's liquidity became strained. Case study asserted that ANB lacked the capital to withstand a high level of non-performing loans. ANB had approximately $1.9 billion in total assets, roughly 90 percent funded with brokered deposits, which are more volatile than core deposits. According to published reports, ANB's past due and non-accrual loans more than tripled during the six months preceding closure. The FDIC estimates that the failure of IndyMac will result in a material loss to the deposit insurance fund of approximately $8 billion, while ANB's failure will amount to a $214 million loss to the fund. In light of these failures, let's look at issues that affect a bank's financial condition and what lessons can be learned. The problems typically fall into one or more of the following categories: 



Management forgets/ignores the principle of risk and return.



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Management fails to properly diversify.



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Bank personnel engage in activities that they do not fully understand.



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Management is incompetent, or a fraud is committed.



Banks can often achieve impressive returns-which far exceed peer levels-by employing aggressive growth strategies, such as expanding into unfamiliar markets, lowering overall credit quality or exposing the bank to high-risk commercial real estate concentrations. Often, funding strategies involve more costly and less stable wholesale funding in the form of brokered deposits. The volatile combination of aggressive asset growth funded with wholesale sources can create tremendous strains on liquidity and increase the bank's sensitivity to interest rate fluctuations. A better means of achieving growth is a measured approach with an appropriate funding and risk management strategy established prior to any significant growth.



INDYMAC Boards of directors should give close attention to the time-proven fundamentals of lending during good economic times. Otherwise, issues will inevitably arise when credit conditions deteriorate. Additionally, boards should pay close attention to the liability side of the bank's balance sheets. Brokered deposits, used within prudent levels, can serve as a legitimate source of funding. However, if asset quality deteriorates and capital ratios fall, prompt corrective action triggers can restrict the renewal of brokered deposits.



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