IndyMac Fallout Hits Other Banks

The fallout of IndyMac Bank prompted investors to dump the stocks of many mortgage lenders, precipitating the steepest one-day decline in banking shares since 1989, a newspaper report said on Tuesday.

Southern California fixtures Downey Financial Corp. and FirstFed Financial Corp., were among the hardest hit, with their stock prices down 24 percent and 19 percent respectively, according to the Los Angeles Times.

Meanwhile, shares of Washington Mutual Inc., the biggest savings and loan, fell nearly 35 percent, said the report.

There was widespread fear among the banks that depositors would begin to pull their funds out, creating risks for even a reasonably healthy bank in a hurry, the report said.

IndyMac was shut down Friday by federal regulators during a run on deposits. The federal Office of Thrift Supervision (OTS) reported that 1.9 billion in consumer deposits were withdrawn.

The bank reopened Monday as IndyMac Federal Bank, which was said by bank executives as safe and sound, but depositors still lined up outside the bank to get their money back.

IndyMac, based in Pasadena, Los Angeles, is the largest bank in California ever to be taken over by regulators and the second largest bank failure in U.S. history.

IndyMac, which was already in trouble because of subprime mortgages it had with people with bad or no credit history, had been operating under close regulatory scrutiny since January.

It lost 614.8 million dollars in 2007 and 184.2 million dollars during the first quarter of this year, largely as the result of bad home loans.

The company's stock, which traded as high as 50 dollars a share in 2006, traded for as low as 28 cents Friday.

Source: CRIEnglish