Federal banking regulators blasted the bankruptcy trustee overseeing the liquidation of IndyMac Bancorp. for attempting to "inject himself" into proceedings to resolve one of the largest bank failures in U.S. history.
The Federal Deposit Insurance Corp., which has been in control of IndyMac Federal Bank since authorities seized it in July, wants to sell the failed California thrift to a holding company owned by a group of hedge funds and private equity firms.
But bankruptcy trustee Alfred H. Siegel, who is overseeing parent company Indymac Bancorp.'s liquidation, has raised questions about the sale. Siegel claims that some of the assets being sold may actually be the property of the bank's former parent, and he wants the FDIC to open its books about the proposed sale before the deal is completed.
The FDIC official in charge of IndyMac Federal Bank, Rick Hoffman, said the trustee's request involving the review of tens of thousands of documents could potentially torpedo the deal.
"The trustee's effort to require the FDIC to review and produce documents and make witnesses available for examination regarding the proposed sale in the midst of the sale process as well as the other conservatorship and receivership activities would result in a serious disruption," Hoffman said in court papers.
An investment group that includes hedge fund Paulson & Co., as well as private equity firms J.C. Flowers & Co. and Dune Capital Management, has agreed to inject roughly $1.3 billion in capital into IndyMac Federal Bank.
Among the assets being sold are the bank's 33 branches, with $6.5 billion in deposits, loans and securities totaling $22.9 billion, and the company's reverse-mortgage unit, Financial Freedom.
The FDIC says those assets belong to the bank and not to the bankrupt parent, and they thus are outside the scope of the trustee's authority. Judge Sheri Bluebond of the U.S. Bankruptcy Court in Los Angeles has scheduled a Thursday hearing on the hearing on the dispute.
Siegel believes more than $754 million in assets were improperly transferred from the parent company to the bank in the years prior to the parent's bankruptcy filing. He's filed a claim against the FDIC to recover those assets for the benefit of the parent company's creditors.
The trustee said in court papers that it appears as if the parent "downstreamed" cash to the bank to shore up its finances.
That downstreaming was at the root of the Treasury Department inspector general's probe of the Office of Thrift Supervision in connection with a back-dated capital infusion into the bank shortly before its collapse.
The capital infusion allowed the bank to be classified as "well capitalized," enabling it to offer brokered deposits. Such deposits offer higher yields to consumers but pose a greater risk to the FDIC's deposit-insurance fund.
IndyMac Bancorp filed for Chapter 7 protection in July to liquidate its assets after its bank was seized by federal regulators. At the time of its takeover by the FDIC, it was the third-largest bank failure in U.S. history.
The FDIC has estimated IndyMac's failure will cost its deposit insurance fund between $8.5 billion and $9.4 billion.