The parent of Chicago's Corus Bank has moved to head off a grab by federal regulators at more than $257 million in tax refunds stemming from the bank's collapse.
Corus Bankshares Inc. filed for Chapter 11 bankruptcy protection after the bank was seized in September 2009. Monday, the parent company asked the U.S. Bankruptcy Court in Chicago to declare expected tax refunds property of its bankruptcy estate. Such a declaration would force the Federal Deposit Insurance Corp. to stand in line with the company's other unsecured creditors, waiting for payment.
The FDIC is serving as receiver for the bank, which was packed with loans to condominium development projects when the housing market crumbled. It is likely to lay claim to the tax refunds as it tries to find money to pay creditors of the bank. A spokesman for the FDIC could not immediately be reached for comment Tuesday.
The money is coming back because losses tracked to Corus Bank's failure and seizure will be counted against years of taxes paid when the lender profited from the building boom.
Corus Bankshares listed debts of nearly $533 million when it filed for bankruptcy protection. More than $416 million of the parent company's debt load is principal and interest owed to subordinated bondholders, court papers say.
A similar dispute over tax refunds is a focal point of another bank-failure-related bankruptcy, that of Washington Mutual Inc., former parent of Washington Mutual Bank, or WaMu.
In the case of WaMu's former parent, the dispute over the tax refunds involved not just the FDIC, but also JPMorgan Chase & Co., WaMu's new owner. A proposed settlement that splits the tax refunds three ways is built into Washington Mutual's Chapter 11 plan. The settlement proposal has drawn fire from shareholders of the parent company and from bondholders of WaMu, the failed thrift. Both say JPMorgan is getting too much out of the tax split, more than it paid for WaMu.
Corus, like WaMu, went under due to the collapse of the housing market, but only after racking up years of profits. During normal times, banks and their parents share the benefit of tax refunds, under formal agreements.
Most such agreements send the tax refund to the parent company first. The parent then splits the money with the operating unit, after applying the agreed tax sharing principles.
Attorneys for Corus' parent say the tax-sharing agreement translates into unsecured creditor status for the FDIC in bankruptcy court.