Two directors of the Federal Home Loan Bank of Seattle have resigned at the board's request, following an investigation into whether their...

Share story

Two directors of the Federal Home Loan Bank of Seattle have resigned at the board’s request, following an investigation into whether their banks improperly sold stock back to the home-loan bank last fall before its deteriorating financial picture became widely known.

The investigation concluded that while there was “the appearance of impropriety” about the transactions, directors Roy Whitehead, chief executive of Washington Federal Savings, and Allan Landon, chief executive of Bank of Hawaii, had no “conscious motivation to harm anyone.” Seattle-based Washington Federal and Honolulu-based Bank of Hawaii have agreed to undo the sales, effectively reinvesting about $48 million and $25 million, respectively, in the home-loan bank.

The two banks sold the stock — most of what they owned beyond the minimum required for membership — back to the home-loan bank shortly before it announced large profit drops and before the bank’s regulator put it under closer supervision.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks.

The probe also looked into the sale of $229.5 million in home-loan bank stock by Washington Mutual, but concluded it posed no real or perceived problems. William Longbrake, WaMu’s vice chairman, is also a director of the home-loan bank. Federal Home Loan Bank stock is owned by members, which are mostly other banks. One member requested an investigation into the timing of the buybacks, which was done by a committee of directors who were not affiliated with any member bank.

In its press release on the investigation, the home loan bank said Whitehead and Landon failed to disclose their institutions’ planned redemptions to the home-loan bank board.

It also said, without elaborating, their actions had “the intention of benefiting the Seattle bank.” Whitehead and Landon disagree with the investigation’s conclusions and have denied any wrongdoing, according to the release.

Whitehead declined to comment, and Landon was not available yesterday. The home-loan bank did not release the report on its investigation.

Bank of Hawaii spokesman Stafford Kiguchi said, “We disagree with the conclusions. However, we didn’t want there to be any question or misperception regarding our intentions, and by restoring the redemptions, we’re able to eliminate that concern.”

James Faulstich, the home-loan bank’s interim chief executive, declined to discuss specifics such as how Washington Mutual’s stock buyback differed from the other buybacks.

“This clears the way so we can get about the business of running the bank,” Faulstich said.

The Seattle home-loan bank, one of 12 such institutions nationwide, makes low-rate loans to its members.

The Seattle bank ran into problems in recent years after starting to buy mortgages from members, a venture that led to a steep decline in earnings for 2004.

Former Seattle Mayor Norm Rice, who became the home-loan bank’s CEO in 1999, retired in March.

The home-loan bank has warned that it might have net losses in the next few years and that it might stop paying dividends to members.

It also has suspended buybacks of the type of stock it had bought from Bank of Hawaii and Washington Federal.

Ronald Rosenfeld, chairman of the Federal Housing Finance Board, which regulates the home-loan banks, said in a statement yesterday, “We are pleased to see that the Seattle board took the necessary and appropriate steps to resolve the situation.”

Doug Duvall, spokesman for the Federal Housing Finance Board, said the board has made banking regulators and the Securities and Exchange Commission aware of the investigation and its resolution. The SEC can look into such transactions even though the home-loan bank is not public and does not report to the commission.

But John Coffee, Columbia University law school professor and corporate governance expert, said the SEC is not likely to view such stock buybacks as a matter of insider trading.Melissa Allison: 206-464-3312