CIT Group to buy Pasadena lender OneWest Bank
Pasadena’s OneWest Bank, which rose from the ashes of failed high-risk home lender IndyMac Bank, agreed to be bought by commercial lender CIT Group Inc. in a $3.4-billion deal that would create the biggest bank based in Southern California.
The acquisition of OneWest, announced Tuesday, also would mark a big payday for billionaire investors who put up $1.5 billion five years ago to buy much of IndyMac from federal regulators. The investors have already shared in nearly $1.9 billion in dividends since then.
CIT Group, based in New York, agreed to pay $2 billion in cash and $1.4 billion in its shares to acquire OneWest and combine it with its own bank. The new lender, operating as CIT Bank, would have its headquarters in OneWest’s Pasadena offices and would hold about $67 billion in assets.
“Over five years we’ve made tremendous progress,” OneWest Chairman Steven T. Mnuchin said. “We think it’s a terrific outcome for our customers and shareholders.”
Such a turn of events seemed unlikely in 2008 when the Federal Deposit Insurance Corp. seized IndyMac and auctioned it off during the depths of the Great Recession.
The savings and loan, a specialist in mortgages made without verifying borrower incomes, had become an international emblem for the loose lending that triggered the global crisis in real estate and mortgage securities.
Its failure that July was ushered in by a run on the bank, with photos broadcast around the globe of lines of panicked depositors snaking out the doors of branches.
Two dozen potential buyers poked at the wreckage. Goldman Sachs offered to take on IndyMac’s billions in shaky loans if the FDIC shouldered most of the losses — but the Wall Street giant had no use for the bank’s branches. Minneapolis’ U.S. Bank, with major operations in Southern California, said it would take the branches if the FDIC gave it $95 million — but it had no desire for the heaps of soured home loans.
The winning bid — and the only one for the entire bank — came from a group spearheaded by Las Vegas hedge fund operator Dune Capital Management. It included noted investors George Soros and John Paulson, along with Dell Inc. founder Michael Dell.
The private investors pledged to provide more than $1.5 billion in fresh funds and to reshape the thrift into a “healthy banking institution” — again on the condition that the FDIC absorb most of the losses at what was renamed OneWest Bank.
Five years later, and after a record $13.1 billion in losses for the FDIC, the private investors announced plans Tuesday to cash out. Regulatory filings show the investors already had been paid $1.86 billion in dividends through the end of last year. As the FDIC paid out $13.1 billion to offset losses on IndyMac loans, a record for a single failed bank, OneWest reported $3.1 billion in profits.
Those involved in the deal and analysts said OneWest bankers would benefit from the broader range of commercial loans available at CIT, as well as its Internet-based banking franchise. The new company would also enjoy a more stable source of cheap funds — the billions of dollars in deposits gathered through OneWest’s branch system.
The combined bank’s $67 billion in assets would make it more than twice the size of the largest banks now based in Southern California — City National Corp. and East West Bancorp.
Mnuchin, Dune Capital’s co-founder, said he and Joseph M. Otting, the veteran banker serving as OneWest’s chief executive, had fulfilled the promise to rebuild the bank. Otting and current management would continue to head the bank after the deal closes, with Mnuchin remaining its chairman and becoming a vice chairman of CIT.
OneWest now has 73 branches, $15 billion in deposits, a portfolio that has grown to include more traditional business loans as well as mortgages, and a local profile burnished by sponsorships of the Los Angeles Lakers and Angels sports franchises.
CIT and its chairman and chief executive, John A. Thain, also took some lumps during the crisis. CIT was forced to file for bankruptcy protection in 2009 when the short-term business loans known as commercial paper, its major funding source, dried up.
Thain headed Merrill Lynch & Co. before the Wall Street firm nearly collapsed in 2008 and sold itself to Bank of America Corp. He said the deal “diversifies and lowers the cost of CIT’s deposits,” now gathered through brokers and over the Internet — sources that dry up unless interest rates are kept at the highest end for the industry.
OneWest’s growth was hastened by its acquisition of two failed institutions from the FDIC — Santa Monica institution First Federal Bank of California, a 39-branch adjustable-mortgage lender, in December 2009; and 10-branch La Jolla Bank, a big lender to developers and builders, in February 2010.
At more than $50 billion in assets, the new CIT Bank would exceed the threshold at which banks have been subjected to increased scrutiny in the aftermath of the financial crisis. But Bert Ely, a longtime banking and regulatory consultant in Alexandria, Va., said he thought regulators would approve the takeover.
CIT “just didn’t have a very reliable funding model, and now they’ve got it,” Ely said, while OneWest would gain additional commercial loan offerings and perhaps owners who wish to expand its footprint in Southern California.
“This is probably as close to a win-win as you could get,” Ely said, noting that shares of CIT Group rose 11% on Tuesday on news of the deal.
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