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Billionaires cash in on OneWest deal, but taxpayers lose out

Michael Dell Addresses Oracle Open World ConferenceMichael Dell Addresses Oracle Open World Conference
Dell CEO Michael Dell.Photo by Justin Sullivan—Getty Images

The list of winners in CIT Group’s (CIT) acquisition of OneWest Bank reads like a who’s who of U.S. billionaires, but it’s the loser in the deal that might be most surprising.

A cadre of private investors — including John Paulson, George Soros, Christopher Flowers and Michael Dell — shelled out $1.55 billion for the assets of the former IndyMac, taking it off the hands of the Federal Deposit Insurance Corporation in 2009 at the height of the financial crisis.

On Tuesday those investors saw a 119% profit as CIT Group snapped up those same assets, which were renamed OneWest after the purchase, for $3.4 billion.

So, who lost out? U.S. taxpayers.

“These are sweetheart deals,” said John Taylor, president of the National Community Reinvestment Coalition. “It’s not surprising that the investors did so well, I just don’t know that we had to give up so much in the process of that.”

The low price the investors paid for the assets in 2009 was not necessarily a given. Investors competed for IndyMac’s assets, and they didn’t necessarily go to the highest bidder. The FDIC hand picked the buyers and fluffed the deal with government guarantees, even swallowing a portion of the losses.

The government, and by default taxpayers, may have left precious dollars on the table when it sold off the IndyMac assets, given the price at which the bank was sold just a handful of years after the fact. The exact loss is hard, if not impossible, to calculate.

In the heat of the moment, while the financial system was melting down, the FDIC was happy to get the failing assets off its hands. Still, the FDIC didn’t necessarily take the hit head-on: the burden was passed on to consumers who covered any faltering FDIC balance by paying higher bank fees, said Taylor.

“Whatever the FDIC does it goes on to consumers,” he said. “Do consumers benefit from these sweetheart deals? You’re keeping a bank alive and you’re [finding] new owners, the question is does the bank then see to it that the people in the charter territory benefit.”