The Fall of IndyMac Bancorp Inc.

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Case Details:

Case Code : FINC064
Case Length : 20 Pages
Period : 2000-2009
Pub. Date : 2010
Teaching Note :Not Available
Organization : IndyMac Bancorp Inc
Industry : Banking
Countries : US

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

The failure of IMB with US$ 32.01 billion in assets as on March 31, 2008, was described as the second largest bank failure in the US till that time⁶.

Since its inception in 1985, IMB had grown to become one of the largest mortgage lenders and savings banks in the US. The bank's collapse was attributed to both the financial crisis⁷ in the US mortgage markets that emerged in late 2007 as well as the run on the bank by its depositors. Several rating agencies and analysts had given warning signals in the media about IMB's financial stability since mid-2007. However, IMB remained optimistic about its operations and expected the US mortgage markets to return to stability in 2008...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

Excerpts >>

6] Continental Illinois National Bank that closed in 1984 with around US$ 40 billion in assets was the largest financial institution to close in the US history till July 2008.
7] Prices in the US real estate markets peaked at the end of 2006. The boom in the real estate markets was fueled by low interest rates and the aggressive lending practices of banks. Banks had lent to subprime borrowers aggressively as they assumed that the real estate property as collateral was an appreciating asset. Taking the route of securitization, banks packaged the mortgage loans into financial securities and sold it in the secondary markets to different types of global investors like hedge funds, investment banks, and insurance firms. In addition to selling those securities in the secondary markets, a few banks also held those securities in their own investment portfolio. In 2007, real estate prices started moving down drastically. Many subprime borrowers could not meet their loan repayment obligations. The demand for mortgage loan backed securities in the secondary markets came down significantly. That led to a crisis for the investors as the value of their investments in mortgage backed securities came down substantially and they could not even sell them in the illiquid secondary markets. This resulted in massive write-downs by the financial institutions. All these events led to the financial crisis and availability of credit went down drastically.

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