WASHINGTON - In the largest deal of its kind, the former owners of the failed Superior Bank FSB announced Monday that they had reached an agreement to pay $460 million to federal regulators as a result of the thrift's collapse, but admitted no liability for its fall.
The deal also all but committed the FDIC to suing the thrift's accountants at Ernst & Young. If the government proves Ernst contributed to the Hinsdale, Ill., thrift's failure, the deal requires the FDIC to turn over a quarter of its winnings to the former owners.
The agreement caps a two month long negotiation, initially instigated by the prominent Pritzker family, who owned half of Superior's holding company, along with the New York developer Alvin Dworman. All sides claimed the deal as a victory.
"Never before has the FDIC achieved an agreement of this size in regard to a single institution - and to achieve such an agreement in five months is equally unprecedented," said FDIC Chairman Don Powell.
The Pritzkers said they hoped the money would minimize or eliminate all of the approximately $500 million of anticipated losses to the thrift deposit insurance fund, and repair some of the $60 million lost by Superior's uninsured depositors.
The "Pritzker family interests … believe the agreement reflects their historical commitment to stand by their investments and are convinced that the agreement is the right thing to do," the family said in a statement.
The agreement is a stunning development in the tale of Superior, which collapsed after the owners purportedly walked away from a recapitalization plan to save the bank in July. The owners denied wrongdoing, instead blaming the fall of the thrift on Ernst & Young, which had dramatically written down certain subprime assets in January. As part of the deal, the Pritzker family will share 25% of any winnings from the FDIC's case against the accountants. Similarly, the family will win 10% of anything received from Superior's still pending goodwill case against the government, filed before its failure.
The agreement calls on the Pritzkers to pay $100 million immediately, and pay the remaining $360 million in equal annual installments over 15 years with no interest. Sources said Mr. Dworman was paying very little of the agreed settlement. The FDIC and the Office of Thrift Supervision, in return, released the Pritzkers and the Dwormans from any future litigation, and agreed not to take any future enforcement actions against them. However, four key bank management officials, including Nelson Stephenson, the former president of Superior, were excluded from the deal.
A source close to the Pritzker interests said that the agreement did not forbid the Pritzkers and the Dwormans, who have blamed each other for the thrift's demise, from suing each other.
Analysts said it would have been extremely hard for the FDIC to win $460 million in court.
"It would have been difficult," said Bert Ely, an independent analyst in Alexandria, Va. "They would have spent a lot of money doing it and it would have taken a lot of time too. This has the element of certainty to it. They get it solved, get it off the table, and it clears the decks to go after Ernst & Young."
Federal regulators have been expected to file suit against Ernst & Young, though they have a three-year limit to do so. A source close to the Pritzkers said they believed there was a "strong claim" against the accountants, and are "happy that the government seems to agree."