I thought it would help to have a tick-tock of the closing of IndyMac. This is purely a dump of Google looking for reported troubles at the bank, and I wouldn't call it exhaustive. The company maintained a corporate blog which has helped with some documentation, but I invite you to read it to find more nuggets.

• Early 2007: IndyMac shows up as a target of short-selling. The credit crisis in subprimes, says the bank's president, won't spread to Alt-A loans, which IndyMac specializes in. (Alt-A definition.)
  
• Mid-2007: Subprime crisis erupts. American Home declares bankruptcy, and IndyMac buys some of their offices and hires many of its former employees. By mid-August, bucking the trend, IndyMac resumes jumbo loans and keeps the risk on their own portfolio rather than sell the risk into the market. Stock analysts start writing down the stock. Another report shows IndyMac buying office space from troubled mortgage banks in Hawaii.
• Late 2007: The company dilutes its capital base to raise funds for liquidity, and Standards and Poors responds by marking down IndyMac's debt to junk level on Dec. 11. In late November, IndyMac halves its dividend. Its forecast of house prices looks somewhat optimistic. Its third quarter loss is five times what it had expected. (Income statements.)
  

So by this time we know they have a problem, and that their response has been to continue confidence in the sector, continued expansion, while raising capital and cutting the dividend. It will soon release a very bad fourth quarter. So...

• January 15 -- a quarter of the workforce is to be let go; from the CEO, Mike Perry:
  

  The reality is that since October 12 conditions have gotten worse in our industry. The private secondary market remains virtually frozen, and the market suffered another setback in November, as the GSEs reported large losses and indicated that they are capital-constrained, with the result that they had to further tighten their own guidelines.

  "GSEs" for the uninitiated are Fannie Mae and Freddie Mac. Thus the jumbo loan re-entry attempted in August has fallen on hard times.
  

  What we see happening in our industry today is the direct result of our capitalist, market-based, free enterprise system, where resources (people, capital, etc.) are constantly being redeployed from industry to industry, often in an abrupt and gut-wrenching way. The bottom line is that there have been too many resources deployed to the housing and mortgage markets for too long, and the markets are forcing these human and capital resources to be abruptly redeployed to other industries. In this �survival of the fittest� system, which I believe ultimately produces the healthiest overall economic environment, the bottom performing real estate and mortgage professionals are having a tough time staying in the business, and most are realizing that they have to find different careers.

  Little did he know then...


• Feb 12 -- Tanta at CR posts this letter from Perry that blames just about everyone else.


• March 31 -- deposits at the bank are reported to have risen, but a high share of them are brokered deposits.


• June 26 -- Senator Charles Schumer sends letters to regulators later quoted by news sources that say IndyMac "may have serious problems with its current loan holdings, and could face a failure if prescriptive measures are not taken quickly." Claims to be concerned for taxpayers and borrowers. According to later reports, one of the items focused on the heavy use of brokered deposits.


• June 30 -- the company responds that things are under control. Meanwhile, reports of depositors pulling out funds and IndyMac selling its performing loans at less than half face value begin. The Center for Responsible Lending releases a report "IndyMac: What Went Wrong?" CRL is a public policy group that focuses on the housing and mortgage markets. It has appeared frequently in committee hearings with Sen. Schumer.


• July 7 -- IndyMac announces it is halting all lending operations. Will lay off half of workforce. Rumors break out that shares are no longer trading.


• July 9 -- never a good sign, the bank is now offering the highest rates on 6-month CDs, 40 basis points above the next-highest.


• July 11 -- IndyMac is closed.
  

  �This institution failed today due to a liquidity crisis,� OTS Director John Reich said. �Although this institution was already in distress, I am troubled by any interference in the regulatory process.�
  
  ...IndyMac had reacted to market conditions and OTS concerns in November 2007 by changing its operations and business plan to build a foundation for recovery. IndyMac was actively seeking to arrange a significant capital infusion or find a buyer. The recent release of the senator�s letter undermined the public confidence essential for a financial institution and took away the time IndyMac needed to pursue a recovery.

Schumer and the CRL report certainly helped precipitate the liquidity drain, but this was not a bank in good shape whatsoever. It seems evident that up to late fall IndyMac was using a model that suggested the problems of other banks would not spread to their balance sheets, and even as late as January they believed there to be hope. An April purchase of jumbo mortgages from IndyMac by Fannie Mae might have led it to believe the worst was behind it. Tought to judge now with hindsight, but a case can be made that the bank's management was deluded. Mark McQueen is more forgiving of Schumer than I might be but you cannot put the blame ONLY on the senator.

Labels: banking, economics