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IndyMac to reopen 'strong and safe,' new boss says

  • Story Highlights
  • NEW: "Business as usual" for insured customers starting Monday, new CEO says
  • NEW: Stockholders will likely be "wiped out" when assets sold, new CEO says
  • FDIC will reopen IndyMac on Monday under new name -- IndyMac Federal Bank
  • IndyMac was seized by federal regulators over concerns of mortgage lender's viability
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PASADENA, California (CNN) -- California bank IndyMac will reopen as a "strong and safe institution" under federal management and a new name Monday, days after regulators closed it, the firm's new CEO said Sunday.

"Come Monday morning, it will be business as usual for all insured customers," said John Bovenzi, who was placed in charge of IndyMac -- now named IndyMac Federal Bank -- after regulators seized the firm Friday.

The Federal Deposit Insurance Corp. guarantees traditional bank accounts up to $100,000 and individual retirement accounts up to $250,000. The bank's 265,000 customers with insured accounts "should know that their insured money is safe," Bovenzi told reporters Sunday afternoon.

Customers with deposits beyond the insured limits "are still covered for their insured amounts" and also will "have immediate access to 50 percent of their uninsured balances," Bovenzi said.

"As assets of IndyMac are sold, they may receive even more," said Bovenzi, who also is the FDIC's chief operating officer.

IndyMac was once one of the nation's largest home lenders. But the federal Office of Thrift Supervision seized the bank Friday afternoon and transferred control to the FDIC after a two-week period in which customers withdrew more than $1.3 billion.

"Our objective is to preserve the bank's value and return it to the private sector, which we plan to do in the upcoming months," Bovenzi said. Video Watch Bovenzi try to assure customers whose deposits are insured »

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Bovenzi said stockholders will likely be "wiped out" once the bank's assets are sold. IndyMac shares already were down to 28 cents on Friday, and shareholders won't receive the proceeds from the bank's eventual sale, he said.

During the weekend takeover, customers were closed out of branches and were unable to perform online or phone banking transactions. However, they still could take cash out of automatic teller machines and write checks, Bovenzi said.

Online and phone banking options will be restored Monday, Bovenzi said.

IndyMac grew rapidly during the recent real estate boom years, specializing in "Alt-A" loans that required little or no evidence of income or assets from borrowers. But it suffered losses when the market for mortgage-backed securities dried up. Video Watch how mortgage companies are affected by IndyMac »

The OTS, which oversaw IndyMac, blamed U.S. Sen. Charles Schumer, D-New York, for the bank's failure. The OTS said a June 26 letter Schumer wrote to regulators questioning IndyMac's viability prompted the two-week, $1.3 billion run on the bank.

On Sunday, Schumer rejected culpability for the bank's collapse, saying the Bush administration is trying to "blame the fire on the person who calls 911."

Schumer, chairman of Congress' Joint Economic Committee and the third-ranking Democrat in the Senate, said the OTS "ought to stop pointing false fingers of blame and start doing its job to protect the future of the banking system, so that there won't be other IndyMacs."

"IndyMac was one of the most poorly run and reckless of all the banks," he said. "It was a spinoff from the old Countrywide, and like Countrywide, it did all kinds of profligate activities that it never should have. Both IndyMac and Countrywide helped cause the housing crisis we're now in."

The embattled Countrywide Financial Corp. was recently purchased by Bank of America.

Schumer argued the "breadth and depth" of the problems at IndyMac were "apparent for years, and they accelerated in the last six months." But OTS, he said, "was asleep at the switch and allowed things to happen without restraint.

The White House had no immediate response.

IndyMac lost $184.2 million in the first quarter of 2008, on top of $614 million last year, and announced last week it was expecting a wider loss for the second quarter. However, it was not on the FDIC's list of 90 "problem" banks being monitored by regulators, Bovenzi said.

The FDIC does not publish a list of trouble banks out of concern it could spur a bank run, and Bovenzi would not comment on any other institutions.

When a bank shuts down, some accounts such as annuities and mutual funds are not insured. About 95 percent of the $19 billion in deposits in IndyMac are insured, but that leaves $1 billion that was not covered by FDIC guarantees. Video Watch financial analyst Suze Orman discuss IndyMac's collapse »

According to the agency, 10,000 IndyMac customers could lose as much as half of that amount, or $500 million. The agency says the failure will cost the Deposit Insurance Fund between $4 billion and $8 billion, based on preliminary estimates.

"This will certainly be a costly failure. Whether it's the costliest, we just don't know at this point," FDIC Chairman Sheila Bair said on a conference call late Friday night. The failure could also affect premiums paid by all banks for deposit insurance, she added.

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IndyMac, with assets of $32 billion and deposits of $19 billion, is the fifth bank to fail this year. Between 2005 and 2007, only three banks failed. And in the past 15 years, the FDIC has taken over 127 banks with combined assets of $22 billion, according to FDIC records.

IndyMac marks the largest collapse of an FDIC-insured institution since 1984, when Continental Illinois, which had $40 billion in assets, failed, according to FDIC records. The two most expensive banking failures were in 1988, during the nation's savings and loan crisis: American Savings and Loan Association in California ($5.4 billion) and First Republic Bank in Texas ($4 billion).

All About IndyMac Bancorp Inc.Federal Deposit Insurance Corporation

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