Schumer: IndyMac's Troubles Don't Extend to Regional Banks
In the wake of the troubles now facing Indymac Bancorp Inc. (IMB), Senator Charles Schumer (D-NY) came out Tuesday suggesting that the bank's troubles "were not replicated by other regional banks." "Neither depositors nor investors should read IndyMac’s unique troubles as an omen for other institutions," he said in a statement released by his office early Tuesday afternoon, clearly looking to assuage investor concern and perhaps looking to take a conciliatory tack with frustrated banking regulators. Scrutiny over Indymac’s future had reached a fever pitch in recent weeks, as a leaked letter from Schumer to federal regulators questioned the financial health of the bank and led to a mini-bank run. Regulators called the leak "reckless and irresponsible," with director of the Office of Thrift Supervision John Reich suggesting that the letter misled depositors and investors alike. Indymac said late Monday afternoon that it would exit the majority of its mortgage lending business, leaving only its reverse mortgage subsidiary Financial Freedom intact. The move will cost some 3,800 employees their jobs, as the Pasadena, Calif.-based thrift said it faced no other alternatives to shore up capital after regulators warned the bank that it was not adequately capitalized. "In this very difficult and challenging environment, any of the actions that we take to keep Indymac safe and sound unfortunately have negative consequences to some important constituency," CEO Michael Perry wrote in a letter that was posted on the company’s corporate blog Monday afternoon. "We don’t expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets." Schumer, for his part, remained steadfast in his stance that the leaked letter to regulators had little to do with the bank's current troubles. His remarks on Tuesday said that the Federal Home Loan Bank system "should not bankroll abusive lending," referring to Indymac's reliance on FHLB advances. "It is obvious that the breadth of the bad lending that has led to IndyMac’s troubles happened over the last few years, not the last few days. In short, IndyMac was a junior version of Countrywide," he said. "For months, publicly available filings have shown that IndyMac fueled its growth through unsound lending practices, including the selling of 'no-doc' and other risky loans that hurt consumers and shareholders alike. "With both Countrywide and IndyMac, the regulators should have done more sooner." Disclosure: The author held no positions in publicly-traded firms mentioned herein when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.