July 22, 2014

CIT Group will acquire OneWest

The deal illustrates how casualties of the financial crisis have moved on, and even prospered.

Five years ago, after the mortgage market had imploded, a group of investors — including the billionaire hedge fund managers George Soros and John A. Paulson — banded together to create a bank from the wreckage of the failed California lender IndyMac.

Now those investors are set for a big payday, thanks to the CIT Group, a lender that itself ran into trouble after the housing bust.

On Tuesday, CIT said it would acquire the bank that rose from IndyMac’s ashes, OneWest, paying $3.4 billion in cash and stock to its hedge fund and private equity owners.

The deal illustrates how casualties of the financial crisis have moved on, and even prospered.

The deal is a coup for John A. Thain, the Wall Street executive who sold Merrill Lynch during the depths of the crisis and was later unceremoniously ousted from the bank. Under his leadership, CIT, a lender to small and midsize businesses, has grown — to the point where, with the acquisition of OneWest, it will be deemed a systemically important bank for the first time.

Tuesday’s deal will roughly double the size of its commercial bank, to $28 billion in deposits and $67 billion in assets. And the cost of its funding will drop to about 2.4 percent.

Investors in OneWest will reap a windfall from their investment in the lender. Led by Steven T. Mnuchin, a former partner at Goldman Sachs, the investors formed the bank in 2009 with $1.55 billion of their own money by buying the remains of IndyMac from the Federal Deposit Insurance Corp.

Now they stand to have more than doubled their money. The $1.85 billion in proceeds from the sale to CIT will come on top of more than $2 billion in dividends that the investors have already taken out of the bank.

Such results are a rich turnaround for what had been one of the biggest bank failures during the financial crisis. When IndyMac collapsed, it became the second-biggest savings-and-loan to fall in 2008, behind only Washington Mutual.

Efforts by the FDIC to enlist private investors to help rebuild failed banks opened the door to the OneWest deal. Since then, OneWest has blossomed into a healthy regional lender serving the Los Angeles area. Its assets have grown to $23 billion from $16 billion, while it now counts 73 retail branches across Southern California.

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