Court approves Fremont sale

July 18th, 2008, 10:49 am · 1 Comment · posted by Mathew Padilla, Reporter

Fremont General of Brea said today the U.S. Bankruptcy Court in Santa Ana approved the sale of its 22 branches and its deposits, previously tagged at $5 billion, to investment company CapitalSource Inc., which formed a California bank to consummate the deal.

The sale should close before July 31, Fremont said in a brief filing.

It’s interesting to compare Fremont to the recent FDIC seizure of IndyMac Bancorp, a much larger bank. The FDIC shut down Fremont’s subprime lending business last year. But the company stayed afloat until it found a buyer for its assets with input from federal regulators.

IndyMac, which recently reported it had 33 branches and $18 billion in deposits, closed within weeks of Sen. Charles Schumer (D-New York) making public letters he wrote to regulators saying they were ill prepared for a failure of the bank, should one occur. That sparked a run on its deposits, and regulators took over the bank a week ago.

Does the Fremont case suggest that if Schumer hadn’t opened his mouth (or pen), IndyMac also could have found a buyer for its deposits and avoided the messy take over by the FDIC?

I think that’s a legitimate question. But I suppose one can also argue IndyMac was digging a deeper hole by relying more lately on brokered deposits to fund itself. For those unfamiliar with the term, brokered deposits are huge blocks of cash that specialized brokers shop around for their clients seeking the highest possible yield. In other words, IndyMac was paying more and more to get money in its doors. That suggests a takeover could have been more costly if regulators waited longer.

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