President Bush’s son Neil and 10 other former directors and officers of a failed Colorado savings and loan have reached a $49.5-million settlement with federal banking regulators over a lawsuit stemming from the thrift’s 1988 failure, a federal judge in Denver announced late Wednesday.
The tentative settlement with the former directors of Silverado Banking, Savings & Loan ranks as one of the largest ever negotiated by the Federal Deposit Insurance Corp., the agency that insures bank and thrift deposits. Silverado’s failure is expected to cost taxpayers about $1 billion.
The settlement, which also includes a law firm and one of its partners that represented the thrift, requires Neil Bush and the other defendants to pay $26.5 million to the FDIC. In addition, the agency will take over a $23-million Silverado Indemnity Fund that the directors set up for themselves in 1986 because they could not get directors’ insurance.
Bush’s defense lawyer, James Nesland, said in a telephone interview that his client is obviously relieved.
“He hopes this will put it all behind them. We look at this as the end of a period,” Nesland said. Nesland, who has previously said Bush has been strained financially by the Silverado battle, declined to comment on his client’s financial condition or Bush’s ability to pay his share of the settlement, which has not been disclosed.
Neil Bush’s involvement in the Silverado scandal has been an ongoing embarrassment for his father as well as the Republican Party. Democrats have vowed to make Neil Bush the “poster child” of the savings and loan scandal. Until the Silverado scandal mushroomed last year, the Republicans had successfully put the Democrats on the defensive largely as a result of the ties between prominent Democratic senators and former Lincoln Savings & Loan owner Charles H. Keating Jr.
Investigations into Silverado showed that Bush, who served on the thrift’s board from 1985 to 1988, among other things failed to disclose his close ties to developers Kenneth M. Good and Bill Walters, who defaulted on a total of $106 million in loans from Silverado.
The FDIC sued Bush and the other former directors for $200 million last September in federal court in Denver, alleging that they were “grossly negligent” in overseeing the activities of Silverado. The lawsuit alleged that the directors of the Denver-based thrift authorized excessive pay to managers and approved bad loans and deals that caused the thrift’s collapse.
Settlement of the civil suit comes after six weeks of prolonged, sometimes round-the-clock negotiations in Denver, New York and Washington. Specifics of the tentative settlement are expected to be made public on Friday.
U.S. District Court Judge Sherman G. Finesilver, who announced the agreement in principle on Wednesday, said it is expected to become final June 12.
Bert Ely, a thrift and banking consultant in Alexandria, Va., argued that the $49.5-million settlement amount is misleading because the money in the indemnity fund never belonged to the directors in the first place. The fund, financed with $15 million in Silverado money, was invested in securities backed by mortgages and has grown to its present amount.
Ely argued that the settlement in reality is $26.5 million, which means the government recovered a little more than 13% of what it was suing for.
“That is not that great,” he said.
But FDIC spokesman Alan Whitney said the agency disagrees, noting that the agency values the settlement at the full $49.5 million.
“There is no question this is a satisfying settlement,” Whitney said.
He added that additional money may be obtained because the FDIC is trying to recover money from Silverado’s former accountants, Coopers & Lybrand.
Ely also questioned whether the government will actually recover the $26.5 million since directors have been burdened with legal and other costs. Whitney said he is confident FDIC lawyers made sure that money is available to pay the settlement.
Last month, T. Timothy Ryan Jr., the nation’s top thrift regulator, publicly rebuked Bush, saying he engaged in serious conflicts of interest as a Silverado director.
Ryan ordered Bush to follow strict rules of conduct if he ever affiliates with a savings and loan again. In doing so, Ryan upheld an earlier administrative law judge’s ruling that Bush behaved improperly.