WaMu may settle lawsuit

SEATTLE – A nickel a share.

That’s how much Washington Mutual shareholders could receive, on average, as part of a $208.5 million proposed settlement in the lawsuit brought by a group of pension funds and other investors against the failed lender’s former top executives, directors, underwriters and accountants.

According to papers made public Friday in federal district court in Seattle, the executives and directors – a group that includes former Chief Executive Kerry Killinger – will pay $105 million, a group of 14 securities firms will pay $85 million, and accounting firm Deloitte & Touche will pay $18.5 million.

But while that seems like a lot of money, it pales against the estimated 1.43 billion shares of Washington Mutual common, 10.2 million shares of Washington Mutual preferred, and 38.6 million notes and other securities that would be covered by the settlement.

The investors sued following the 2008 seizure of Seattle-based Washington Mutual by federal regulators in the nation’s largest bank failure. The class action, which consolidated several lawsuits filed around the country, accused Washington Mutual’s executives and directors of violating federal securities laws by making “materially false and misleading statements” and “misleading omissions” related to the company’s mortgage-lending practices while selling various issues of stock and notes.

The settlement money would be allocated based on a complex formula that takes into account what type of securities investors owned, when they bought and sold them, and what price they paid or received. The period covered by the lawsuit runs from Oct. 19, 2005, through July 28, 2008.

Attorneys for the lead plaintiffs estimate that if everyone eligible to participate in the settlement chooses to do so, and all their claims are allowed, common shareholders would recover just 7 cents per share. Attorneys’ fees would take 2 cents, leaving a nickel for the stockholder.

The attorneys, who have been working on the case without pay for more than three years, plan to request fees amounting to 22.5 percent of the total settlement amount, or $46.9 million, and up to $5.8 million in expense reimbursement.

Holders of the other securities covered by the settlement would receive different amounts – up to $7.23 per share of preferred stock, which sold for $1,000 a share when it was issued in December 2007.

The deal still must be approved by federal Judge Marsha Pechman and the Washington Mutual shareholders in the class.

The plaintiffs asked Pechman to give preliminary approval so that eligible investors can be notified. They proposed a hearing for final approval be held in early November.

Insurance is likely to cover most or all of the settlement payments, especially for the seven former executives and 13 former directors named in the suit.