Here's some interesting historical precedent.
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First City Bancorp in Plan To Settle Suit With F.D.I.C.
By KATHRYN JONES,
Published: Saturday, December 18, 1993
The First City Bancorporation of Texas and the Federal Deposit Insurance Corporation reached a tentative settlement of a $3 billion lawsuit today that could return $145 million to creditors and depositors and pave the way for First City to emerge from Chapter 11 bankruptcy protection next year.
First City had sued the F.D.I.C. in September, arguing that the agency had acted arbitrarily by declaring the banking company insolvent in October 1992 and seizing its assets, and that the agency would reap a windfall from the sale of those assets.
The board of the F.D.I.C. said today that it had agreed in principle to the arrangement, which would repay in full all unsecured creditors, including uninsured depositors. In addition, the F.D.I.C. said it would eventually return to First City all surpluses from the liquidation of the 20 First City banks. The banks were closed in January and sold to Texas Commerce Bank, a unit of the Chemical Banking Corporation, and others.
Neither side would put a dollar value on the proposed settlement, but First City officials, in testimony at bankruptcy hearings in Dallas, had estimated that it would take $125 million to pay creditors and $20 million to cover uninsured depositors.
Shareholders could receive further benefits as the F.D.I.C. finishes liquidating the $8 billion in assets it seized when it declared First City insolvent.
Analysts said the settlement was an embarrassment for the F.D.I.C., which was criticized by First City officials when it closed the bank as they were putting the final touches on a $400 million recapitalization plan.
"In hindsight, it looks like the F.D.I.C. acted too hastily," said Frank W. Anderson, an analyst with Stephens Inc. "It's unusual for them to settle so quickly."
But Andrew Porterfield, a spokesman for the F.D.I.C., said the question "is not whether we should have closed the bank or not."
Rather, he said, the First City case was unusual because the F.D.I.C. had sold the First City banks at a $430 million premium above the value of the deposits. "That helped cut our costs a great deal," Mr. Porterfield said. "We think there will not only be no loss to the bank fund, but there will be a surplus."
The proposed settlement, which is subject to a definitive agreement that must be approved by the Federal Bankruptcy Court, would be paid in two stages. After it filed a reorganization plan, First City would receive cash and other assets to bring it out of bankruptcy. And over time, additional cash and assets would be returned to First City after the F.D.I.C. and the company established the size of the surplus from the receivership and liquidation of the 20 First City banks.
First City, which sued the Office of the Comptroller of the Currency and the Texas Banking Commissioner as well as the F.D.I.C., would drop its lawsuits under the settlement.
The ultimate value of the settlement will depend on the prices the F.D.I.C. receives for the First City assets and negotiations between the two sides over the amount of the surpluses in the receiverships. Working Out Disparities
Bob Brown, the president and chief operating officer of First City, said the agreement would allow for a settlement while the two sides worked out their disparities of estimates on the surplus. The settlement will be the "cornerstone" of First City's attempt to emerge from bankruptcy protection, he said.
On Monday, the company will ask the bankruptcy court for an extension for filing a bankruptcy plan. First City said it could emerge from Chapter 11 by the summer.
"It's pretty good news," Mr. Brown said. "Instead of fighting all the time, it will be nice to get on to something positive."
Mr. Brown said he believed that First City might eventually get back into banking or a banking-related business.
