FDIC reaches $64M settlement with ex-WaMu execs
Wednesday, December 14, 2011
The Federal Deposit Insurance Corp. has reached a settlement worth $64 million with three former executives who ran Washington Mutual, the largest bank to fail in U.S. history.
The settlement, which hasn’t been announced publicly yet, was made with the bank’s three top executives: former CEO Kerry Killinger, former chief operating officer Stephen Rotella and former chief of home loans David Schneider. The settlement amount of $64 million is mostly made up of the executives giving up claims to golden parachutes, bonuses and retirement funds, rather than cash that the executives have to pay.
It is also just a fraction of the $900 million the FDIC had sought to recover in a suit filed in March. The agency had accused the executives of gross negligence and reckless disregard for the long-term safety of the bank.
Washington Mutual was seized by federal regulators in September 2008 and immediately sold to JPMorgan Chase & Co. for $1.88 billion.
The three executives were in charge of the bank when it wrote millions of subprime mortgages to borrowers who didn’t have the ability to repay the loans. When the real estate bubble burst, hundreds of its customers lost their homes to foreclosure. The bank reeled from losses and ultimately went under in 2008.
Killinger alone received more than $65 million in compensation from 2005 to 2008 for leading over an institution that ultimately failed.
The paltry settlement amount and the fact that the executives will likely be paying very little from their own pockets come at a time of public outcry over how federal agencies have handled the misdeeds of financial firms that led to the financial crisis.
Last month, a federal judge in New York struck down a $285 million settlement that Citigroup reached with the Securities and Exchange Commission because there was no admission of guilt on the part of the bank. The U.S. District Judge Jed Rakoff criticized regulators for shielding the public from details of the firm’s wrongdoing.
The FDIC, in an unusual move, had also sued the wives of Killinger and Rotella. The FDIC’s complaint alleged Killinger and his wife had transferred two residential properties to trusts and appointed themselves as trustees. The agency accused Rotella of a similar transfer of residence and that he had transferred $1 million to his wife. The FDIC claimed the transfers were made with the intent to defraud future creditors of the bank.
The FDIC has dropped its claims with the spouses as part of its settlement.