Steven Mnuchin's Defining Moment: Seizing Opportunity From the Financial Crisis - WSJ - 0 views
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On a muggy morning in July 2008, hundreds of customers stood outside IndyMac Bank branches in Southern California, trying to pull their savings from the lender, which was doomed by losses on risky mortgages.
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Steven Mnuchin didn’t know much about IndyMac as he watched the scenes on CNBC from his Midtown Manhattan office. But he immediately saw an opportunity and began figuring out how to buy the bank.
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Regulators seized IndyMac, foreshadowing a vicious banking crisis. Six months later, Mr. Mnuchin and his investment partners acquired IndyMac with a helping hand from the U.S. government. The deal eventually earned him hundreds of millions of dollars in personal profits.
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If confirmed by the Senate, the defining traits he will bring as the 77th Treasury secretary include a Wall Street pedigree, long relationship with Mr. Trump, and a history of moving fast to seize opportunities that might terrify others
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IndyMac was the defining deal of Mr. Mnuchin’s career. He knew that the government needed to sell the failed bank—and he played hardball.
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Like other Trump cabinet picks, Mr. Mnuchin has a résumé that is at odds with much of the president-elect’s populist rhetoric on the campaign trail.
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Mr. Mnuchin, whose father spent his entire career at Goldman, came of age on Wall Street in the 1980s as the business of slicing loans into securities was booming. As a mortgage banker at Goldman, he saw up close ¾the savings-and-loan crisis and efforts by the government to wind down hundreds of insolvent financial institutions.
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The bank, which was renamed OneWest Bank and is now part of CIT Group Inc., is under civil investigation by the Department of Housing and Urban Development for loan-servicing practices.
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Mr. Mnuchin is regarded within the Trump transition team’s inner circle as a skilled team player. Mr. Trump’s advisers say Mr. Mnuchin will fuse traditional Republican Party support for lower taxes and less regulation with the president-elect’s populist stances on trade and infrastructure.
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Like other partners, he earned tens of millions of dollars when Goldman became a publicly traded company in 1999. He bought a 6,500-square-foot apartment in a famous Park Avenue building. Messrs. Mnuchin and Trump were soon in the same philanthropic and social circles,
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Mr. Mnuchin donated to the campaigns of Democrats Barack Obama,John Edwards,John Kerry and Al Gore. The only Republican presidential candidate Mr. Mnuchin gave money to was Mitt Romney in 2012.
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It was the second-largest bank failure of the crisis, surpassed only by Washington Mutual Inc. in September 2008.
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At the end of 2008, Mr. Mnuchin persuaded the FDIC to sell IndyMac for about $1.5 billion. The deal included IndyMac branches, deposits and assets. The FDIC also agreed to protect the buyers from the most severe losses for years. That loss-sharing arrangement turned out to be a master stroke.
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Banks often go out of their way to avoid losses, even when borrowers are in violation of loan terms. The loss-sharing agreement took away some of the disincentives, since future losses would be borne partly by the government.
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In July 2014, CIT agreed to buy OneWest for $3.4 billion, a bounty of more than $3 billion, including dividends. Mr. Mnuchin’s take was several hundred million dollars, according to a person familiar with the matter.
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Before formally launching his presidential bid, Mr. Trump turned to Mr. Mnuchin for advice over dinner. Mr. Mnuchin helped write a tax-cutting plan and tried to rein in some of Mr. Trump’s populist rhetoric, including his vow to not “let Wall street get away with murder,” people familiar with the matter said.
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Mr. Trump’s financial agenda, which Mr. Mnuchin would lead as Treasury secretary, has ignited a broad stock-market rally. CIT shares are up about 13%, increasing the value of Mr. Mnuchin’s stake by about $11 million. It is now worth more than $100 million.