Downey Savings Seized by FDIC, Sold to US Bank. Customer Loans, Deposits Safe

Downey Financial, a Newport CA based savings and loan, was seized by the FDIC Friday and sold to US Bank in a deal the FDIC brokered. As of October 22, Downey’s loans no longer collecting interest were 15.7 percent of bank assets. Most of these bad loans were from their portfolio of about $7 billion in negative amortization Option ARMs. After WAMU, Wachovia and Countrywide, Downey was the fourth largest seller of Option ARMs. Indymac was the fifth. All firms have been brought down by these loans.

In the same deal US Bank also took over PFF Bank & Trust. Between the two takeovers, they said they’re acquiring about $12.8 of assets and $11.3 of liabilities. The Minnesota bank will more than double its California presence after adding 170 Downey branches in California plus five in Arizona, and also 38 PFF Bank branches in California. US Bank never lent Option ARMs, and retains most of its loans in its portfolio.

There have been 22 bank failures so far in 2008. Loan and deposit customers of Downey are better off with US Bank. Here’s a US Bank Q&A for Downey customers.