Requests to tap insurance policies for potential legal costs of former officers and board members of the failed First NBC Bank were deferred Tuesday by a federal bankruptcy judge, who separately approved hiring an auditor to evaluate tax-related assets of the bank's parent company.
In court filings, First NBC Bank Holding Co. shows potential tax credits of nearly $360 million as of last year, describing them as "an extremely valuable asset of the estate" that could lower its future tax obligations should it emerge from bankruptcy reorganization.
The hiring of an auditor was considered among several motions taken up during a hearing before U.S. Bankruptcy Court Judge Elizabeth Magner, who is handling the case.
Federal and state regulators ordered First NBC Bank closed in April, initiating an estimated $1 billion cleanup, the costliest failure of an American bank since 2010. Two weeks later, First NBC Bank Holding Co. filed for bankruptcy protection.
In addition, a federal grand jury has opened a criminal inquiry into the bank's collapse and has begun issuing subpoenas, The Advocate has reported.
Meanwhile, in a Sept. 1 court filing, attorneys for the Federal Deposit Insurance Corp., which protects bank customers in the event of failure, disclosed having made a demand for at least $250 million in civil damages from the bank's former board of directors and four former senior executives, citing "gross negligence and breach of fiduciary duty in connection with the business and affairs of the bank."
The FDIC's filing did not name the senior officers.
Well before the bank failed, it took out five insurance policies aimed at protecting bank directors and officers from personal liability for bank business, court filings show. The company held roughly $60 million in insurance policies.
On Tuesday, attorneys for First NBC Bank founder and former CEO Ashton Ryan Jr. and former Chief Financial Officer Mary Beth Verdigets appeared before Magner after filing motions for their clients to begin collecting money from insurance policies, long held by the bank, to cover their mounting legal costs.
Magner deferred making a ruling on the insurance policies. At least one former bank official raised questions about how the proceeds would be tapped.
"People are getting demand letters, and they need to lawyer up," said William Aaron, a New Orleans lawyer who was a director of both the bank and its parent company. "The question is, is the court going to be a gatekeeper every time somebody needs to lawyer up?"
In some cases, the FDIC pursues litigation against bank officers and directors to try to recoup damages, typically alleging that they were negligent or failed in their fiduciary duty in overseeing some key area of the bank's business.
First NBC was founded by Ryan in 2006. In the wake of Hurricane Katrina, it was a big player in many ambitious construction projects that were financed with federal and state tax credits. The bank relied on such credits for much of its stated earnings, an accounting maneuver that concerned industry analysts.
To use the tax credits, however, the bank needed to earn a profit on which to owe taxes. Because that wasn’t happening recently, the credits piled up into what's called a deferred tax asset. Many observers questioned how the bank would be able to use the credits, which will eventually expire worthless if the bank is not able to capitalize on them first.
The parent company of the former First NBC Bank plans to hire auditor PricewaterhouseCoopers to assess whether its stable of deferred-tax assets could be used to offset hundreds of millions of dollars' worth of future taxes on the chance the company could emerge from a bankruptcy reorganization.
The auditing firm will review the history of the bank's stock to determine if an "ownership change" has occurred as a result of past equity transactions that could affect the company's ability to use its tax asset.
The analysis will cost $95,000, half of which will be borne by "several shareholders," company attorney William Steffes of Baton Rouge, said Tuesday during the hearing.