Veteran of FDIC Takeover Tells What It’s Like to Run a Failed Bank
Courtesy of Candice Choi, Wall Street Journal (click here to listen to the story)
John Bovenzi is part of the small club of people who have run a failed U.S. bank, a group whose membership expanded by two this month when regulators swooped in to take over Silicon Valley Bank and Signature Bank.
In 2008, Mr. Bovenzi, a longtime Federal Deposit Insurance Corp. staffer, took the helm at the failed mortgage lender IndyMac. What he discovered, and what likely faces executives running the latest failed banks: Deposits flood out, but few come in. The employees who haven’t left are looking for other jobs. It is possible some of the remaining higher-ups are responsible for what went wrong—and might even be questioned by law-enforcement officials.
“So that’s a little twist—you’re relying on people, but at the same time, investigators want to talk to everybody,” Mr. Bovenzi said.
Until the failures of SVB and Signature, IndyMac was the second-biggest bank failure in U.S. history, behind Washington Mutual. Now the two recent collapses have bumped IndyMac into fourth place.
Like IndyMac, both SVB and Signature were taken over by the FDIC. Unlike with IndyMac, the FDIC was able to draw on a roster of seasoned banking executives it had assembled in recent years for such emergencies. Tim Mayopoulos, former chief executive officer at Fannie Mae and a former top executive at Bank of America Corp., jumped in at SVB. Greg Carmichael, a former Fifth Third Bancorp chief, parachuted into Signature.
When IndyMac failed as its home loans soured, the FDIC didn’t have a reserve corps of bank executives. It fell to Mr. Bovenzi, the agency’s chief operating officer, to take over.
Mr. Bovenzi and a team from the FDIC flew to IndyMac’s headquarters in Pasadena, Calif., on a Thursday, fanning out to different hotels and avoiding use of government-issued identification. “We didn’t want the whole town to know it was filled with people from the FDIC the night before [the bank] was going to close,” he said.
When the FDIC team arrived at IndyMac’s offices the next day, Mr. Bovenzi said IndyMac’s management didn’t seem surprised—the CEO had already cleaned out his office.
The FDIC shut down the bank’s branches soon after, which was before the end of the business day on the West Coast. That caused a headache when newspapers carried photos of customers banging on the doors of bank branches, desperate to get their money out.
On the first weekend after seizing the bank, the FDIC team’s priority was to separate insured and uninsured deposits in advance of an expected influx of customers on Monday morning. Unlike with Silicon Valley Bank and Signature, regulators only backed insured deposits, which at the time were capped at $100,000. (Later, the FDIC raised the limit to $250,000.)
Mr. Bovenzi’s other pressing goal: telegraphing to the public through media interviews that insured deposits were safe. It was a tough sell given the public angst over IndyMac.
“The only story that drew more attention that weekend was the birth of twins to Angelina Jolie and Brad Pitt,” Mr. Bovenzi wrote in a book about his experiences at the FDIC.
Another challenge: Mr. Bovenzi, who was then 55, had never worked at an actual bank, having started at the FDIC after graduate school. He said his deep knowledge of deposit insurance made him believe he could stabilize a chaotic situation.
“He just exuded so much confidence,” said Arleas Upton Kea, the FDIC’s head of internal operations at the time and one of the agency staffers who flew out to IndyMac. “And having people keep their money in financial institutions is all about maintaining confidence.”
Even so, Mr. Bovenzi’s reassurances didn’t initially work.
“When we opened Monday morning, there was a bank run,” Mr. Bovenzi said. “There were lines at all the branches of IndyMac.”
It was hot in Pasadena that July, but Mr. Bovenzi still looked the part of a government official in suit and tie when he went outside to try to convince people that they didn’t need to stand in line. People were mostly calm, but refused to budge.
The bank eventually handed out numbers to customers giving them a time when they could return to withdraw money. That thinned the lines but didn’t slow withdrawals. Over the first few weeks, customers drained about $3 billion in deposits, Mr. Bovenzi said.
At the same time, regulators were trying to keep employees and put together retention packages for those who stuck it out. Not everyone was asked to stay. The loan-origination offices were shut down as the lender’s focus shifted to servicing existing mortgages.
“We weren’t interested in making new loans,” Mr. Bovenzi said. “That’s what got the bank in trouble in the first place—all the subprime mortgages.”
Mr. Bovenzi, now 70, recalls that as the new chief he moved into the ousted CEO’s corner office, which was on the sixth floor, with expensive art and floor-to-ceiling windows looking out to the San Gabriel Mountains. The former CEO’s company car, a Mercedes, was still in the parking lot. Mr. Bovenzi said he refrained from driving it. The car became one of the first IndyMac items the government sold.
Down the hallway, Mr. Bovenzi passed a man sitting in an office. “At one point, I went over and asked him, ‘Well what do you do?’ And he says, ‘Well I’ve got a gun, I’m here to guard the office and the CEO,’” said Mr. Bovenzi, citing threats the company had been getting.
Like the Mercedes, that employee was soon gone.
Over time, the situation stabilized. Mr. Bovenzi was able to fly home more to see his wife, Erica, more often. At first, he told her that IndyMac would be a short-term assignment. “He comes home and he says he’s going to California for a couple of weeks, and that wasn’t true,” said Ms. Bovenzi, who was a deputy general counsel at the FDIC at the time.
It wasn’t until March 2009 that regulators sold IndyMac. Mr. Bovenzi left the FDIC soon after, joining Oliver Wyman, a management-consulting firm.
Today, the Bovenzis run a financial-services consulting firm in Alexandria, Va. Mr. Bovenzi expects Silicon Valley Bank’s eventual sale to be much quicker than that of IndyMac. Already, the FDIC announced that New York Community Bancorp’s Flagstar Bank would take on most of Signature’s deposits.
Still, Mr. Bovenzi warned of unexpected twists. At IndyMac, Lehman Brothers was hired to advise on the sale of the lender. Soon after, the investment bank itself collapsed in dramatic fashion.
“It was one more thing that can go wrong,” Mr. Bovenzi said.