IndyMac Bancorp Inc. has decided not to spin off its reverse mortgage subsidiary and has appointed one of its own executives to head the unit.
Instead of pursuing an initial public offering for Financial Freedom Senior Funding Corp., IndyMac announced today it will increase its ownership in the company to 100% by purchasing the 6.25% interest in the unit held by its chairman and CEO, Jim Mahoney, for $40 million.
During an investor question and answer session in April, the Pasadena, Calif.-based thrift had said it was "pretty close in deciding" whether to spin off up to 40 percent of Financial Freedom. An IPO would allow the company to recruit and retain management with stock options and encourage the management team to grow the reverse unit's business, IndyMac Chairman and CEO Michael W. Perry said.
But today's announcement said keeping Financial Freedom would be better than spinning it off.
"This will allow us to fully leverage IndyMac's systems, infrastructure and mortgage banking expertise in a way that will enable Financial Freedom to remain a highly profitable and dominant player in the fast-growing but ever more competitive reverse mortgage market," Perry said in today's statement.
Conflicts created by splitting into two publicly-traded companies "would keep us from maximizing the opportunity we have to profitably grow our reverse mortgage business," Perry noted. "The IPO would have been diversionary to the Financial Freedom management team at a time when it is critical that they be focused on taking the business to the next level."
Perry said he expects reverse competition to intensify -- which could erode its first quarter 56 percent market share.
IndyMac said it can help the subsidiary, which funded $1.1 billion during the first quarter, expand its products, broaden secondary marketing channels and service the unusual loans. In addition, IndyMac's existing broker and correspondent base can be solicited with wholesale reverse programs.
Mahoney will relinquish his chief executive officer title at the end of the year and has signed a five-year agreement to remain as chairman, according to the announcement. Michelle Minier, an IndyMac executive for more than a decade, will take over the reigns as CEO.
Financial Freedom will not be consolidated into IndyMac, Perry said. It "will maintain its unique position as an independent company focused on the senior market."