OneWest's CEO has difficult task of fixing broken banks

Jan. 31--PASADENA -- During a recent protest outside his Walnut Street bank headquarters, OneWest CEO Terry Laughlin came down with the bank's head of mortgage services for a little face time with borrowers.

The idea was to "reach out" Laughlin said, and see what he could do or say to help them with their home loans -- which they angrily -- and frequently -- complain have yet to be modified.

As CEO of what was formerly IndyMac, Laughlin is living the realities of a failure he and OneWest had nothing to do with. But at the same time, he's got to build a new bank from the shadow of that failure.

"We have nothing to do with IndyMac," he said in his first interview with this paper.

In December, billionaire investors, including George Soros and computer company founder Michael Dell, agreed to buy IndyMac for what would be nearly $14billion.

IndyMac was among the first banks to collapse in 2008 under the weight of Alt-A loans, which the bank required minimal documentation to get. When the housing market collapsed, IndyMac went with it. The Federal Deposit Insurance Corp. seized the bank in July 2008.

But along came the investors, and ultimately Laughlin -- a veteran banker with more than 30 years of experience at Merrill Lynch Bank & Trust, FleetBoston and Mellon Bank.

While many employees from IndyMac are still with the new bank and it's still headquartered in Pasadena, it's not the same business, he said.

"OneWest

never made an Alt-A loan and is not going to," he said. "What we want to do is old-fashioned, safe, affordable loans."

It's those loans, plus a healthy deposit business, which OneWest executives hope to grow as it makes its mark in Southern California.

So far, that mark is definitely being made.

By Sept. 30, the bank had reportedly generated about $700 million in net operating income. In December, the bank announced that it bought Santa Monica- based First Federal Bank of California and its $6.1 billion in assets in a deal brokered by the Federal Deposit Insurance Corp. With that deal, OneWest grew from the 33 branches it acquired in the IndyMac purchase to a combined 72.

It's part of a strategy to buy up troubled banks, and with the help of the FDIC, to expand -- not to flip it in two years. But in several years -- at least five -- it could sell to another bank, or in the public market to turn a profit. But it likely won't be until the bank has gotten to the benchmark of 100 to 150 branches that executives envision.

"We're not looking to flip this thing in a couple of years," he said, adding that the institutional investors who bought IndyMac prefer a longer-term investment.

"Our goal is to build a Southern California-based community- based bank."

OneWest -- now among Southern California's largest banks -- has reportedly become a test case for private equity money flowing into troubled banks.

There's not a lot of healthy banks out there to buy up troubled banks, said Dominic Ng, CEO and chairman of Pasadena-based East West Bank.

"I think OneWest has been taking advantage of private equity money," he said, adding that such dollars will help filter out troubled banks. "Most likely, in five years they'll sell to another bank ... or go through some form of cashing out. But the way I look at it, whoever they sell to, it will just be another entity. Hopefully they will do a great job and continue."

But they still have to get through many of the loans the bank picked up when IndyMac was acquired.

Laughlin -- who prides himself on a collaborative, team approach to problem-solving -- says they are trying, but there's only so much the bank can do.

As of December, the bank, which entered the Obama administration's Making Loan's Affordable Program in August, had permanently modified 1,226 loans under the program, with 23,012 in the pipeline as trial modifications. If you count the loans modified under the FDIC's control of IndyMac before the purchase, total permanent modifications come to 15,000, officials said.

"It's going as well as can be expected," Laughlin said.

While the bank's loan-servicing staff has been beefed up by 25percent, there's a sticking point when it comes to giving people better terms on their mortgages.

"The problem is, a lot of people just don't qualify," he said.

The realities of the economy -- unemployment, lack of income -- are at odds with a key term of the government's loan-modification program: Borrowers who want better terms must be able to prove that their current monthly mortgage payment is more than 31 percent of their gross monthly income.

It doesn't help that most of their loans are owned by third- party investors, Laughlin said.

"It's a complex situation," he added.

ryan.carter@sgvn.com

626-962-8811, ext. 2720

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