The Federal Deposit Insurance Corp. (FDIC) has reached a settlement of roughly $64 million with former senior executives of Washington Mutual Bank, senior agency officials said Tuesday.
The agreement, which could be signed as early as Wednesday, resolves the biggest FDIC lawsuit to date against failed-bank officers stemming from the crisis. The agency in March had sought more than $900 million in court damages from three former WaMu officers, including former chief executive Kerry Killinger, arguing their undue risks in the thrift's lending strategy helped cause its 2008 failure, which was the largest in U.S. history.
"In any settlement, we're not going to get the total amount that we're seeking. In settlements, neither side is going to be happy," a senior FDIC official said in a telephone briefing with reporters. "Basically, that's why you settle, because of your analysis of the risks involved in the case. But we think this is a good settlement for the receivership."
News outlets had reported existence of a settlement late Monday, and in October the judge in the civil case had suspended proceedings so the two sides could finalize terms of an agreement. The suit had also named former Wamu chief operating officer Stephen Rotella, and mortgage division chief David Schneider. Claims against both Killinger and Rotella's wives, whom the lawsuit had implicated in alleged transfers of assets before and after the failure, will go away under the settlement, the FDIC officials said.
Yet the exact amount the three former executives will actually pay is still unclear. The FDIC officials said the settlement amount is made up of three basic components: cash the defendants will pay up front, a payout from the executives' insurance protection against liability claims and the defendants' releasing their right to certain unpaid compensation — including so-called "golden parachutes" — originally owed them in the bankruptcy of WaMu's holding company.
In addition to the amount coming from the three defendants, the FDIC's receivership of Wamu also lays claim to $125 million won in a global settlement the holding company, Washington Mutual Inc., had previously reached with various parties, including the FDIC. Since the agency had estimated no losses from its 2008 seizure of thrift — and the sale of its operations to JPMorgan Chase & Co. — the FDIC officials said its settlement proceeds will go toward providing some relief to uninsured creditors of the failed thrift.