Bank on the run
IndyMac closes ranks as account holders line up to get their money out
By Andre Coleman 07/17/2008
As thousands of worried depositors descended this week on Pasadena’s beleaguered IndyMac Bank, employees did everything possible to make them comfortable, including passing out folding chairs and bottled water to the line of people wrapped around the corner of North Lake Avenue and Walnut Street.
But none of that could reassure the crowd. Not even employees from rival banks working the crowd in hopes of convincing account holders to switch over to their institutions seemed to get anywhere.
“Disgraceful,” Nancy Bernard of Los Angeles said of shameless hawking by employees of other banks.
“My grandmother doesn’t even have her money from [this bank] yet and here they are claiming this can’t happen someplace else. I don’t believe that for a second.”
Bernard has good reason to be wary. IndyMac is one of the largest financial institutions to close in American history, and the fifth US banking company to fail this year. The company’s stock has dropped 90 percent since January — closing two weeks ago at a low of 62 cents per share — following a loss of $168 million in the first quarter of this year.
The Center for Responsible Lending took aim at IndyMac earlier this month. In its report, “IndyMac: What Went Wrong?” the group claimed the bank “put itself in a hole by engaging in unsound and abusive lending during the nation’s mortgage boom.”
The report cited 19 former employees who claimed they were driven to close loans that even their own risk management experts recommended against.
According to the Wall Street Journal, more failures at banks are expected over the next year. On Monday the paper reported that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, and other lenders are likely to shut branches or seek mergers.
The FDIC has identified 90 institutions as “problem banks,” which means the chance of them failing is even higher. That number is up from 50 at the end of 2006, according to an article in USA Today.
Bernard said she took the day off to stand in line for her grandmother, who sat in a lawn chair in the shade nearby.
“She has almost $75,000 in this bank and we want it all,” she said.
Bernard’s grandma was one of the lucky ones. On Friday, the Office of Thrift Supervision closed the bank and the Federal Deposit Insurance Corp. (FDIC) was named conservator. The federal government announced it would stand by its insurance on accounts of $100,000 or less, giving those depositors full access to their money.
However, about 10,000 depositors with accounts of more than $100,000 collectively amounting to $1 billion over the guaranteed insured limit are not as lucky. FDIC officials issued a press release stating they would only give those customers access to 50 percent of those uninsured funds.
“At the time of closing, IndyMac Bank had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors,” according to the bank’s Web site.
The FDIC was expected to start contacting customers with uninsured deposits Monday to arrange an appointment with a claims agent.
Customers can contact the FDIC for an appointment by calling (800) 998-2900. The FDIC will pay uninsured depositors an advance dividend equal to 50 percent of the uninsured amount, according to the IndyMac site.
The run on the bank began about two weeks after Democratic Sen. Charles Schumer of New York wrote a letter detailing the bank’s problems due to the Alt-A homeowner loans made to consumers with questionable credit.
Alt-A borrowers are not required to provide income verification or documentation of assets. Instead, the approval for an Alt-A loan is based primarily on an individual’s credit score.
Defaults among Alt-A mortgages and other nontraditional loans have increased over the past year, forcing banks like IndyMac to set aside more money to cover defaults.
Since Schumer’s letter first became public, worried consumers and business owners have withdrawn a combined $1.3 billion. Schumer has denied his letter had anything to do with the bank’s downfall.
Last weekend, Schumer said the current administration was once again shifting blame to avoid criticism over the bank’s failure.
“It seems like every day there is just more bad news about the economy,” said William Li. “I’m not sure what I will do with my money after this. I just don’t know. I have been here since 11 and all they keep saying is how the bank is OK, but if you want your money we will give it to you. If the bank was OK, I would be at work today.”
Early Tuesday morning, customers with home loans from the bank received some good news when FDIC officials announced the agency had temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans in IndyMac’s portfolio.
John Bovenzi, the FDIC’s chief operating officer, urged people not to rush to withdraw their money this past weekend, according to published reports, but Monday his words didn’t seem to carry much weight.
“I am only here to get my money,” said Pasadena resident John Welles. “I was out of the country on vacation. I had no idea this was happening. There was no warning. I’m going to lose some of it, but I hear if you don’t get it today you may not get it for months, if you get it at all.”