US IndyMac Bank collapses

| July 13, 2008 | 0 Comments
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California-based IndyMac Bank, which is one of the largest US mortgage lenders, has collapsed as fears over a credit crisis intensify.

IndyMac has had its assets seized by Federal regulators after concerns that it might not be able to meet withdrawals by depositors.

The bank has been struggling to raise cash and continue to trade after the US housing market slump continues with the state of California being one of the worst affected.

According to regulators, it is the second biggest financial institution to fail in US history.

The bank’s primary regulator, the Office of Thrift Supervision (OTS), said depositors had withdrawn over $1.3 billion in the last 11 days.

John Reich, an OTS Director, said the institution collapsed as a result of a liquidity crisis.

The news of the collapse comes after Fannie Mae and Freddie Mac, America’s biggest mortgage firms, lost nearly half of their market value.

US Treasury Secretary, Hank Paulson, is working on plans to pump up to $15 billion (£7.5 billion) of capital into the two institutions in a bid to stem the crisis.

However, both firms say they have sufficient capital to survive the housing slump.

After Mr Paulson hinted that he was not on the brink of taking Fannie Mae and Freddie Mac into public ownership, shares in the two firms recovered.

Shares in Freddie Mac closed down 3.1% at $7.75 while shares in Fannie Mae closed down 22.4% at $10.25 after falling to a 19-year low of $6.68.

Investors are preparing for further bad news from the financial sector as Citigroup is expected to reveal further write-downs of at least $8 billion with its second-quarter results.

In addition, Merrill Lynch is expected to reveal write-downs of around $4 billion.

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