11 business days that followed Schumer's letter, over a billion dollars was withdrawn from Indymac
I found this comment by drainedpool over at the Huffingtonpost.com to be interesting:
The reporting on this has been abysmal. Shumer acts like he had to point out the IndyMac situation to the regulators, who were "asleep at the switch." According to my source (my Pasadena neighbor who was a senior executive of IndyMac), the OTS was quietly on-site at IndyMac since January, working with the executive team to turn things around to avoid having to take the bank under conservatorship. Those involved felt they had a very good chance to avert this disaster.
Schumer's letter undid all that behind the scenes work and proved fatal because (1) it further encouraged hedge fund short sellers and (2) it directly caused a $1.3 B run on deposits. With typical capital ratios (4-8%), loss of $1.3 B in capital uncovers $16-32 B in assets.
Also misunderstood is the root of IndyMacs problems. Their retained loan portfolio was not particularly toxic (it was Alt-A, not sub-prime). Their business model, before it broke, was to generate loans and them sell them through securitization. With the credit crisis, they have been unable to sell their loan portfolio. They had a fundamental mis-match between their current cost of capital (branch deposits and brokered deposits) and the yield on the unsold loan portfolio. Their recent restructuring was intended to correct these issues. Unfortunately, we will never know what would have happened in the absence of Schumer's letter
I guess we'll never know if Indymac could have turned things around. Did Schumer yell fire!! or Was he just stating the obvious? Debatable
Sen. Charles Schumer and the IndyMac debacle
Is WAMU the Next Bank to Collapse?
Are other big banks in-line to tumble the way Indy Mac has? Don't believe the hype according to some:
At the time of collapse, IndyMac's debt was 140% of its tangible capital and reserves, but both WaMu and national city have a debt level of less than 50% of its assets, Cassidy said.
"It's bad and it's not over yet, but investors are throwing out the baby with the bath water," he added. "The prospect of one of these banks failing is far-fetched: both have ample liquidity."
Either way, this is a sticky situation. Hopefully, investors can batten down the hatches a bit and put some of this instability aside.
A Brief History of IndyMac Stock
I used a cool little tool called “Crappy Graphs” that is super fun. Hat tip to the Phoenix Real Estate Guy for pointing it out to me.
Return to: A Brief History of IndyMac Stock
