INDYMAC

Case study

SUBMITTED TO: SUBMITTED BY:

DIVYA PAUDEL KIRAN RIMAL
Course faciliator .
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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

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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.
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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.

 Management fails to properly diversify.
 Bank personnel engage in activities that they do not fully understand.
 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.
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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.

THE END