Re-branded IndyMac – OneWest Bank – Generates Huge Profits in First Year

After acquiring the assets of failed mortgage lender IndyMac from the federal government, investors in the company re-branded it OneWest Bank, and it has soared in profits since the year they took the lender over.

OneWest paid about $1.5 billion for the assets of IndyMac, and over a period of six months which ended on September 30, net operating income came it at close to $700 million. In contrast, IndyMac suffered a loss of $614 million in 2007 from their failed mortgage portfolio.

With the recent acquisition of the failed First Federal Bank of California, the future looks even brighter for OneWest, as it has focused on expanding its business in Southern California, which First Federal gives them.

Including their prior branches in the region, OneWest is now the largest bank in Southern California with 72 branches after buying First Federal, with assets growing to $24 billion after the purchase. OneWest purchased First Federal assets for $401 million, a 6.6 percent premium.

According to OneWest Chairman Steven Mnuchin, the strategy of the company is to focus on expanding their operations in California and the West Coast.

The emergence of OneWest is considered by some as a test case of how it will work to attract more private capital to the banking industry, as numerous banks are poised to collapse in 2010; probably going far beyond the 140 which failed so far in 2009.

Concerns are that private capital has had an historic tendency to increase the debt load of companies they acquire and flip them for a quick profit, which wouldn’t be helpful for the banking industry in the eyes of the Federal Deposit Insurance Corp. (FDIC).

Even so, the FDIC is desperate to keep from having to tap into the $500 billion credit line from the Treasury Department, which would again force the use of taxpayer dollars to deal with the banking crisis. So other than forcing banks to pay for three years of premiums to raise money for the deposit insurance fund of the FDIC, they are looking to private capital as a means of providing part of the answer to the lack of funds to deal with the numerous banking foreclosures set to continue throughout 2010.

That has worked great so far for OneWest Bank, and could be a model for how to go forward and better handle the challenges in the banking industry by not using taxpayer funds to bail out bank after bank, and instead allow the market to deal with the circumstances. OneWest has shown how much better that is than government interference in the market.