Well, it may be
astonishing to anyone not following the travails of the U.S. financial system
over the past six months. IndyMac bank, one of the most well-known
mortgage specialists in the country, was placed into federal hands this
evening.
The firm will
now take the inglorious honor of being the 2nd-largest bank failure in American
history (depending on who's figures you're using).
It's still very
early in the discovery process of what this may mean, but I thought it important
to go back and look at the other largest and/or most-publicized failures in
modern banking history.
The red arrows
on the charts of the S&P 500 below show the date the firm was taken over by
Federal authorities or declared officially insolvent. The dates can vary
depending on the source, so I tried to use the best one as determined by the
FDIC and records posted in the New York Times.
Despite
proclamations of doom at the time, these failures tended to be climactic
events.
The average
return in the S&P 500 six months after these five failures was +19.5%.
The maximum loss during those half-years averaged only -2.0% compared to an
average maximum gain of +22.6%, more than ten times as large.
Again, it's
early in the process with IndyMac and we're still not sure of what some of the
reverberations may mean. Plus, we have to deal with Fannie Mae and Freddie
Mac, which may be facing similar fates and which would likely be more of a
climax. But based on the history of some of the past large bank failures,
we could be very close to seeing the kind of washout that we've needed to see
for months.