By Karey Wutkowski and Megan Davies

The FDIC said it is selling the assets of IndyMac, which has been run by the agency since the lender failed in July, to IMB HoldCo in a deal valued at about $13.9 billion.

The private equity group is putting up about $1.3 billion in cash to capitalize IndyMac when the deal closes, which is expected in late January or early February, the FDIC said.

The group buying IndyMac is led by Steve Mnuchin, the chairman of Dune Capital and a former Goldman Sachs executive, buyout artist Christopher Flowers, and hedge fund operator John Paulson, who gained billions of dollars betting against the housing market.

Affiliates of billionaire investor George Soros and Michael Dell, the chief executive of computer maker Dell Inc , are also involved with the consortium buying IndyMac.

"We have assembled a group of experienced private investors in financial services to acquire the former IndyMac and operate it under new management with extensive banking experience," Mnuchin said in a statement.

The purchase will include IndyMac's 33 branches with about $6.5 billion in deposits, as well as loan and securities portfolios worth about $22.9 billion. IMB HoldCo is also buying a mortgage servicing portfolio worth more than $175 billion.

Terry Laughlin, who previously headed Merrill Lynch Bank & Trust, will serve as chief executive of IndyMac.

"The current economic climate is challenging for selling assets, but this agreement achieves the goals that were set out by the chairman and board when the FDIC was named conservator of IndyMac in July," FDIC Deputy Director James Wigand said in a statement.

The mortgage specialist's IndyMac Bank unit was taken over by regulators after it failed on July 11, making it one of the largest bank failures in U.S. history. At the time, it had $32 billion in assets and $19 billion in deposits.

It was also the largest, publicly traded independent mortgage lender other than Countrywide Financial Corp, which was acquired earlier this year by Bank of America Corp .

Founded in 1985 by Angelo Mozilo and David Loeb, who also founded Countrywide, IndyMac once specialized in "Alt-A" home loans, which often didn't require borrowers to fully document income. It collapsed after defaults mounted, and as tight capital markets caused losses on mortgages it couldn't sell.

SHARING THE LOSS

As part of the deal, the FDIC entered into a loss share agreement with IMB HoldCo on the deal. IndyMac will assume the first 20 percent of losses on a portfolio of qualifying loans, after which the FDIC will assume 80 percent on the next 10 percent of losses, and 95 percent on losses thereafter.

The deal is expected to cost the FDIC's insurance fund between $8.5 billion and $9.4 billion.

The Office of Thrift Supervision said on Friday that it has given IMB HoldCo preliminary clearance to operate IndyMac as a federal savings association under OTS supervision. The OTS said the business model for the new institutions will focus on home mortgage lending and mortgage loan servicing.

The new IndyMac will also continue the FDIC's existing loan modification program, the FDIC said.

After its failure in July, FDIC Chairman Sheila Bair used IndyMac as a petri dish to prove that lenders could use a systematic approach to modify distressed home loans in a way that benefits the financial institution, investors and homeowners.

Bair has encouraged Treasury to use about $24 billion in federal funds for incentives to get lenders nationwide to adopt similar loan modification plans, but has been met with resistance from Bush administration officials. The FDIC said on Friday that the loan modification plan at IndyMac has provided total estimated savings of about $423 million.

PRIVATE EQUITY DEAL

The FDIC was careful to point out that the IndyMac deal is not the first time private equity firms have participated in acquiring failed banks. It said in the early 1990s, the FDIC tapped private equity sources when it sold New Bank of New England and CrossLand Federal Savings Bank.

The agency said it said it received "considerable initial interest from potential bidders" for IndyMac and that the bid from IMB HoldCo was the least costly to its insurance fund. The industry-funded reserve to back deposits fell 23.5 percent in the third quarter to $34.6 billion.

"Allowing hedge funds to own a bank is a sign of the tough economic times and the need for creativity in turning the economy around," said Scott Talbott, chief of government affairs for the Financial Services Roundtable. "Federal banking regulators will continue to consider hedge funds as possible buyers of other failing financial institutions."

The $13.9 billion deal is also an indication that the private equity industry is finding ways to invest capital despite the lack of leverage. The industry has been hammered by the credit crisis which hit buyout firms' ability to buy companies through the traditional leveraged buyout structure.

Relaxation of some rules by U.S. regulators has made it easier for private equity firms to invest in banks, with Flowers being cleared in August by the Office of the Comptroller of the Currency to buy a small bank in Missouri.

(Additional reporting by Megan Davies, Jon Stempel, and Dan Wilchins in New York, editing by Matthew Lewis)