Indymac Purchased by Mnuchin, Paulson & Co. and Others

Indymac, one of the first banks to feel the impact of the credit crisis was purchased today by a consortium led by Dune Capital member Steve Munchin and hedge fund members John Paulson and Christopher Flowers. They agreed to inject $1.3 billion in cash into the bank.

Prior to the IndyMac failure on July 11, 2008, the bank relied heavily on higher cost, less stable, brokered deposits, as well as secured borrowings, to fund its operations and focused on stated income and other aggressively underwritten loans in areas with rapidly escalating home prices, particularly in California and Florida. Since the FDIC has operated the institution, it has restructured funding to focus on more stable core deposits and on improving the value of the loans.

IMB Management Holdings LP and the investor group will inject a substantial amount of capital into a newly formed thrift holding company, which will own and operate IndyMac Federal. IMB Management Holdings LP, has agreed to bring in an experienced senior management team

The agreement with IMB Management Holdings, LP is not the first time private equity firms have participated in acquiring failed institutions. In the early 1990s, the FDIC tapped private equity when it sold New Bank of New England and CrossLand Federal Savings Bank.

Indymac was once a rate leader. Today its savings rates and cd rates are moderately competitive. The new company intends to focus on growing the bank's core deposits so it remains to be seen if Indymac will increase its competitiveness. It is estimated that the FDIC spent between $8 - $9 billion to insure deposits in the bank. The deal values Indymac at about $13.9 billion.