Bloomberg News

Ex-WaMu Executives in Settlement Talks With FDIC Over Losses

June 17, 2011

(Updates with statistics of FDIC litigation in 11th paragraph.)

June 17 (Bloomberg) -- Former Washington Mutual Inc. Chief Executive Officer Kerry Killinger and Chief Operating Officer Stephen Rotella are in lawsuit settlement talks with the Federal Deposit Insurance Corp., according to a court filing.

Lawyers for Killinger, Rotella and David Schneider, Washington Mutual’s former home-loans president, exchanged term sheets with FDIC attorneys and are “diligently working to resolve their remaining disputes,” according to papers filed yesterday in federal court in Seattle.

“In some instances, the settlement terms must have consent of certain third parties,” lawyers for both sides said.

In September 2008, regulators seized WaMu, once the nation’s biggest savings and loan, and sold it to New York-based JPMorgan Chase & Co. for $1.9 billion. The FDIC sued the bank officials in March, claiming they took extreme risks with WaMu’s home-loans portfolio, causing billions of dollars in losses.

Lawyers for both sides asked the court to extend until July 1 the deadline for the former executives to file their initial response to the complaint, which also names Killinger’s and Rotella’s wives as defendants. A final mediation session is scheduled for June 30, according to court papers.

Killinger Blamed

Bank executives blamed Killinger during hearings before the U.S. Senate last year for ineffective management and lax lending standards. Killinger was CEO for 18 years before he was ousted on Sept. 8, 2008. He told senators last year that his company became the largest bank failure in U.S. history in part because it was excluded from a group of financial institutions favored by U.S. policy makers.

Rotella, who blamed Killinger for failing to institute stricter lending controls, said in a letter to friends in March that the FDIC suit was an abuse of power. A copy of the letter was provided in March to Bloomberg News by Rotella’s spokesman, Daniel Hilley.

Hilley declined to comment today on any potential settlement. David Barr, a spokesman for the FDIC in Washington, also declined to comment on a possible settlement.

Steven Caplow, an attorney for Schneider and the Rotellas, didn’t immediately return a phone call and e-mail seeking comment. David Aufhauser, an attorney for the Killingers, also didn’t return a phone call and e-mail seeking comment.

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.

The FDIC has authorized lawsuits against 238 bank officers and directors in an effort to recoup more than $6.7 billion in damages stemming from the credit crisis, agency spokesman Barr said today in an e-mail. More than 360 banks have failed since credit markets froze in 2008.

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

--Editors: Andrew Dunn, Fred Strasser

To contact the reporter on this story: Sophia Pearson in Philadelphia at spearson3@bloomberg.net.

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


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