Seafirst Settles Loan Loss Case Against Ex-Managers

Seafirst Corp. said it has reached an out-of-court settlement with five of its former top executives over blame for $800 million in bad energy loans by Seattle-First National Bank in the early 1980s.

The former officers of Washington state’s largest bank were ousted in 1982, when the collapse of Penn Square Bank in Oklahoma City left Seafirst teetering as well. Many of the bad energy loans that led to Penn Square’s collapse had been guaranteed by Seafirst. As a result, the bank--which suffered several hundred million dollars in losses--faced an uncertain future before its acquisition in a federally approved buyout by BankAmerica Corp. of San Francisco in mid-1983.

Defendants in the case were former Seafirst Chairman William Jenkins, President Richard G. Jaehning and executives John Nelson, Joseph Curtis and John Boyd. Boyd was in charge of the Seafirst energy department, which initiated about $1.2 billion in loans, of which about two-thirds went bad.

Under the terms of the settlement, announced Monday in a Seafirst news release, the former officers have agreed to entry of judgment for $110 million. In return, Seafirst agreed to limit its recovery to the proceeds of insurance policies covering the former officers, none of whom has admitted any wrongdoing.

One of the two insurers, CNA, has acknowledged responsibility and indicated that it will pay Seafirst about $15 million as partial resolution of the settlement, Seafirst said. The other insurer, National Union Fire Insurance, has so far refused to acknowledge coverage and has instead said that its $55-million excess-coverage policy for officers and directors was improperly obtained by Seafirst. Insurance company lawyers say Seafirst officers misrepresented the bank’s condition when they bought the policy.