Whether the process is just winding down for the year or the process is actually winding down for good, the bank closure rate has recently fallen off dramatically. The FDIC has not taken over any banks for three weeks straight, with no bank closure at all so far during the month of December. And there were only five bank closures in November, after eleven in October.
With 90 bank failures so far in 2011, the total number of failed banks since January 1, 2008 stands at 412. The monthly high water mark during that four year period occured in July 2009, when the FDIC took control of 24 banks. More recently, the monthly numbers of bank failures has been well below the monthly high. But even if the rate of bank failures has more recently been down from those higher levels, the overall 2011 bank failure levels remain well above 2008 levels, when only 25 banks failed.
More than half of the bank failures so far this year have been concentrated in just four states, Georgia (which has had 23) and Florida (12), Illinois (9) and Colorado (6). The number of 2011 closures Colorado is a little bit unexpected, as during the preceding three years between 2008 and 2010, the state had a total of only three bank failures. The other three states, by contrast, have pretty much led the way throughout the current bank failure wave. Since 2008, Georgia has had a total of 74 bank failures; Florida has had 57; and Illinois has had 43. Bank closures in those three states, plus California (38) represent more than half (209) of the 412 bank failures between January 1, 2008 and today.
The number of lawsuits that the FDIC has filed so far against the former directors and officers of failed banks as part of the current bank failure wave currently stands at 17 (about which refer here, scroll down). The FDIC has maintained its very deliberate pace in initiating new lawsuits. However, this past week the agency did update the page on its website on which it discloses the number of lawsuits that has been authorized.
According to the FDIC’s site, as of December 8, 2011, the FDIC has authorized suits in connection with 41 failed institutions against 373 individuals for D&O liability for damage claims of at least $7.6 billion. These figures representing the authorized lawsuits contrast starkly with number of lawsuits that the agency has actually filed: So far, the agency has filed only 17 lawsuits against 135 former directors and officers of 16 failed financial institutions. Given the discrepancy between the number of suits authorized and the number of suits filed, there clearly are many more suits in the pipeline, with even more lawsuits likely to be authorized in the months ahead.
The FDIC’s website also mentions that that two of the 17 lawsuits it has filed so far already have settled. One of the two settlements occurred in the lawsuit the FDIC filed in connection with the failed First National Bank of Nevada. As discussed here, the FDIC and the defendants in that case settled for a stipulated judgment, the individual defendants’ assignment to the FDIC of their rights under the bank’s D&O insurance policy, a release of claims and the FDIC’s covenant not to execute the judgment against the individuals. The other of the other of the two settlements was entered in the lawsuits the FDIC had filed on connection with the failed Corn Belt Bank and Trust. In May 2011, the parties advised the court that they had settled the case, but the court file does not reflect the details of the settlement.
Though only two settlements have been announced, there are stories circulating that the FDIC has settled the lawsuit that the agency filed against three former directors and officers of failed Washington Mutual bank and their wives. Indeed, in an October 27, 2011 order in the case (here), Western District of Washington Marsha Pechman stayed all pending deadlines in the case, after noting that the parties had advised the court that the case had settled. (She gave the parties 60 days to complete their settlement and to file their settlement papers with the court.)
The amount of the purported WaMu settlement has not yet been disclosed, but there are a number of relevant data points that may suggest the likely settlement range. The recently announced $208.5 million settlement of the WaMu securities class action lawsuit included a $105 million settlement contribution on behalf of the individual director and officer defendants, to be funded entirely by D&O insurance.
In the settlement papers filed in connection with the WaMu securities class action settlement, it was disclosed that the $105 million in insurance proceeds were to be drawn from a D&O insurance tower (including both traditional and Excess Side A insurance) of $250 million. The $105 million contribution toward the WaMu securities class action settlement materially reduced the amount of insurance remaining in the tower, and it is likely the defense costs in the various actions pending against the former WaMu officers and directors further depleted the amount of insurance remaining.
The amount of the any settlement in the WaMu FDIC lawsuit remains to be seen and it also remains to be seen whether and to what extent the individuals might contribute toward the settlement out of their own assets. But the amount of insurance remaining is at this point likely to be under $100 million, so in the absence of any significant contribution from the individuals the amount of any cash settlement in the WaMu case is likely to be below $100 million. Given that the collapse of Washington Mutual was the largest bank failure in U.S. history, it will be interesting to see the amount of any settlement that ultimately does emerge.
The American Civil War Viewed from Other Shores: As detailed in Amanda Foreman’s massive book A World on Fire: Britain’s Crucial Role in the American Civil War, many individual Britons were so taken up with the apparently romantic appeal of the Confederacy that they enlisted in the Confederate Army. Many were convinced that the South would win its independence, and one Englishman was so certain that he converted “his entire savings into Confederate currency, while it was still cheap to buy.”
The British sympathies for the Southern Cause had many sources, but one of the most important was economic, as a significant part of the British mill industry was dependent on the import of cotton from the Southern States. But despite this obvious financial pull toward the Confederacy, the British Government remained officially neutral, in part because the government did not want to be drawn into the war, on either side. As the war progressed and the appalling numbers of casualties began to accumulate, a vocal peace party began to form in England, in the interests of stopping the carnage. Most of the supporters of this position believed (without any particular evidence) that the Confederacy would have to abandon slavery anyway, after the war ended.
It took two developments, both of which were agonizingly long in coming, for British sentiment to begin running in favor of the North and of the Union. The first was Lincoln’s Emancipation Proclamation, which allowed Northern supporters to contend that the purpose of the war was to end slavery. The real problem the supporters of the North faced was that for the first two years of the war, the North looked incapable of winning. Finally, after the tide finally turned at Gettysburg, the increasing likelihood of a Northern victory allowed the British political elites to begin to envision the possibility of a re-united country after the war concluded.
What Foreman does particularly well in this interesting and detailed book is to tell the tale of the battle for the hearts and minds of the British people while the actual war went forward back in the States. The British government’s official position may have been one of neutrality but it seems as if no one in Britain was personally neutral. After the surrender at Appomattox and shock of Lincoln’s assassination, the Britons rediscovered their natural affinities for their American cousins, and the groundwork was laid for a relationship that has ever since been described as “special.”
I heartily recommend this book, which the New York Times selected as one of the Ten Best Books of 2011.