FDIC Settlement Talks With Ex-Washington Mutual Officers Fail, Lawyer Says

Ex-Washington Mutual Inc. (WAMUQ) Chief Executive Officer Kerry Killinger and two other former bank officials ended talks with the Federal Deposit Insurance Corp. on settling a lawsuit, a lawyer said.

Killinger, former Chief Operating Officer Stephen Rotella and David Schneider, the bank’s former home-loans president, asked a judge to dismiss the FDIC’s suit after the negotiations failed, according to Barry Ostrager, a lawyer for Rotella and Schneider.

“There are presently no settlement discussions and the defendants stand on their motions to dismiss,” Ostrager said today in an e-mail, referring to all three defendants.

In 2008, regulators seized Seattle-based Washington Mutual Bank, once the nation’s biggest savings and loan, and sold it to New York-based JPMorgan Chase & Co. (JPM) for $1.9 billion.

The FDIC sued the Washington Mutual Inc. officials in March, claiming they took extreme risks with the bank unit’s home-loans portfolio, causing billions of dollars in losses. The FDIC accused the executives of disregarding the bank’s long-term safety and fixating on rewarding themselves. The men received more than $95 million in compensation from January 2005 to September 2008, the FDIC said.

‘Fully Disclosed’

The settlement negotiations were revealed in a June 16 court filing, when both sides said they were “diligently working” to resolve remaining disputes. Lawyers said in some instances the settlement terms required the approval of third parties.

“The FDIC is essentially suing my clients for making business decisions that were fully disclosed, monitored, approved and transparent to the FDIC,” Ostrager said in the e- mail. “There is no legal basis for seeking to retroactively impose financial liability upon bank executives for making business decisions of a type that were common and unobjectionable at the time.”

Barry Kaplan, a lawyer representing Killinger, confirmed that the settlement negotiations have “not succeeded at this point,” and declined to comment further.

In his motion to dismiss the suit, Killinger claims the FDIC and Office of Thrift Supervision had on-site examiners at Washington Mutual who knew about and approved “in real time” the business decisions the FDIC is now challenging.

In its lawsuit, the FDIC “says nothing about the worldwide economic crisis that would have led to the failures of virtually all large banks but for unprecedented government intervention that was not extended to WaMu,” lawyers for Killinger wrote.

David Barr, an FDIC spokesman, said the agency declined to comment.

The case is FDIC v. Killinger, 11-00459, U.S. District Court, Western District of Washington (Seattle).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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