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Former IndyMac Said to Hold Talks With at Least Two Suitors

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Paulson & Co. Inc. President John Paulson
The value of Paulson’s stake in OneWest Bank FSB has more than doubled, and the investors recouped some of the investment through a $500 million dividend in the fourth quarter. Photographer: Jin Lee/Bloomberg

Feb. 19 (Bloomberg) -- OneWest Bank FSB, the lender formed out of the remains of failed IndyMac Bancorp Inc., has held informal sales talks in recent weeks with at least two potential buyers, said people familiar with the matter.

UnionBanCal Corp. has expressed interest in Pasadena, California-based OneWest, said one of the people, who asked not to be named because the talks are private. Minneapolis-based U.S. Bancorp also held discussions with OneWest and has since pulled back, that person said.

Billionaires George Soros and John Paulson formed part of the private-equity group that rescued IndyMac and revived it as OneWest in 2009. While OneWest’s owners have made exploratory calls to determine what price the bank might fetch, a sale isn’t imminent, and the group also is considering an initial public offering, another person said.

OneWest, which has absorbed two other failed banks, had $25.8 billion of assets at Sept. 30 and almost 80 branches, according to the Federal Deposit Insurance Corp. Representatives at OneWest, UnionBanCal and U.S. Bancorp declined to comment on the talks. Spokesmen for Soros Fund Management LLC and Paulson & Co. also declined to comment.

IndyMac Origins

The FDIC seized IndyMac after a run on the lender in 2008 led to the third-largest bank failure in U.S. history. OneWest Chairman Steve Mnuchin, a former partner at Goldman Sachs Group Inc., led investors who put up $1.55 billion to kickstart OneWest four years ago. In addition to Paulson and Soros, the consortium also included Michael Dell, founder of computer maker Dell Inc., and J. Christopher Flowers, who created private-equity firm J.C. Flowers & Co.

The value of Paulson’s stake has more than doubled, and the investors recouped some of the investment through a $500 million dividend in the fourth quarter, according to a Paulson letter sent to investors in January and obtained by Bloomberg News. OneWest earned $121 million in the third quarter, compared with a loss of $57 million a year earlier, according to FDIC data.

The Paulson letter indicates that OneWest was valued at $2.89 billion as of January, based on the $704 million valuation Duff & Phelps Corp. placed on Paulson’s 24.4 percent stake. While OneWest’s private-equity owners prefer a sale to an IPO, it’s seeking a higher price than suitors are so far willing to pay, one person said.

Private Equity

Private-equity firms that acquired banks following the financial crisis have increasingly sought to sell their holdings in the past year, said Jeff K. Davis, managing director of the financial institutions group of Mercer Capital, an advisory firm in Memphis, Tennessee. Private-equity-backed banks PVF Capital Corp. and West Coast Bancorp both agreed to sales in the past six months.

Buyout firms, which raise money from institutional investors to purchase companies, typically sell within three to five years, Davis said. The industry’s poor growth prospects have persuaded more firms to seek buyers for these holdings, he said.

“Most of the private-equity investors would, looking back, say that this cycle has been a tougher cycle to invest in banks simply because the earnings and valuation trajectory has not been as strong as we saw in 1992, 1993, 1994,” Davis said. “A number of these deals have just been choppy for the private-equity firms.”

Unpaid Loans

IndyMac made loans that required no income verification from borrowers. Prospective suitors are concerned about the quality of its mortgages, and they also fear that regulators may find fault with certain loans, the people said.

Borrowers failed to pay interest on about 13 percent of OneWest’s loans as of Sept. 30, according to regulatory data. That compares with a median unpaid loan percentage of less than 2 percent in the fourth quarter for the almost 400 banks in the Nasdaq Bank Index, according to data compiled by Bloomberg.

Potential bidders also want to know whether regulators would be willing to extend a government loss-sharing agreement on certain IndyMac assets to a new buyer, according to the people.

U.S. Bancorp had more than 670 branches in California and over $350 billion in assets nationwide, according to FDIC data. OneWest Chief Executive Officer Joseph Otting worked at U.S. Bancorp before taking his current role in 2010.

UnionBanCal, based in San Francisco, is owned by Mitsubishi UFJ Financial Group Inc., which last year merged the lender with Pacific Capital Bancorp of Santa Barbara, California.

To contact the reporters on this story: Matthew Monks in New York at mmonks1@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net

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