Apparently waiting until the markets closed this afternoon, the feds seized control of IndyMac Bank, one of the largest S&Ls in the nation with over $32 billion in assets.   IndyMac is by report the second largest bank to fail in the nation, topped only the Continental Illinois National bank and trust company ($40 billion, 1984). 

The reports we’ve read detail that the bank will reopen on Monday under the control of the FDIC; the FDIC is projecting that the failure will cost it’s deposit insurance fund somewhere in the range of $4 to 8 billion (that’s $8,000,000,000).  

IndyMac’s travails have been most closely tied to their very heavy exposure to Alt-A mortgage products, a now much maligned loan product that they indeed helped pioneer.  Interestingly IndyMac was charted by Countrywide Financial back in 1985 and finally obtained their independence in 1997. 

One of our source articles today interestingly ties the failure of the bank to statements made by Senator Charles Schumer (NY, D) – here’s a quote from the WSJ web article: 

In a written statement, the Office of Thrift Supervision, which regulated IndyMac, said “the immediate cause” of the failure was statements made by Sen. Charles Schumer, a New York Democrat. Mr. Schumer in late June publicly raised concerns about the bank’s solvency.

After Schumer’s comments in June depositors started to flee in earnest, with $1.3 billion withdrawn from the bank over the next 11 days.  Ouch. 

These indeed are very interesting times, and in all probability will get much more interesting in the next week or two.  Stay tuned, but don’t forget to take a deep breath, and get out and enjoy these mid-summer days. 

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