In the latest adverse development in the deepening credit crisis, federal regulators recently seized the assets of IndyMac Bank, a major mortgage lender. IndyMac held $32.01 billion in assets as of March 31, 2008. The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it no longer had confidence that IndyMac could meet its depositors' demands.
According to federal regulators, IndyMac Bank is the second largest financial institution to close in U.S. history, second only to that of Continental Illinois National Bank, which held nearly $40 billion in assets when it failed in 1984.
IndyMac Bancorp Inc., the holding company for IndyMac Bank, has been struggling to raise capital as a result of the housing slump and deteriorating credit climate. The Office of Thrift Supervision said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies to promptly take steps to prevent IndyMac's collapse. As reported, in the 11 days that followed the letter's release, depositors took out more than $1.3 billion.
Even before Friday’s announcement of IndyMac’s failure and the takeover by the FDIC, IndyMac and its directors and officers had been named as defendants in numerous subprime-related lawsuits. On June 11, 2008, an IndyMac investor initiated a securities class action lawsuit in the Central District of California against IndyMac Bancorp and several directors and officers alleging that the defendants had issued materially false and misleading statements regarding IndyMac’s business and financial results. These investors charged that the IndyMac defendants had downplayed and concealed IndyMac’s growing exposure to non-performing assets, particularly loans in its pay-option adjustable-rate mortgage and homebuilder construction portfolios, and had made numerous positive representations regarding the IndyMac’s capital position – all in an improper attempt to alleviate investors’ fears concerning IndyMac’s capital erosion.
In another recent lawsuit, IndyMac and its directors and officers were sued for failing to fully disclose problems with IndyMac's internal controls and underwriting practices and for maintaining inadequate provisions for loan losses. This lawsuit did not relate to the IndyMac’s representations regarding Options ARM mortgages or IndyMac’s capital position. Thus far, the IndyMac defendants have twice been able to persuade the court to dismiss the investor class action complaint, although both times the judge gave the investor plaintiffs another opportunity to file an amended complaint if they could allege more specific wrongful acts by the IndyMac defendants.