(Bloomberg News) Wilmington Trust Corp., the Delaware bank forced to sell itself after its stock plunged 90%, made so many bad loans that employee retirement accounts lost value, according to a lawsuit.
Wilmington Trust approved risky loans for what it called beach homes that were actually a 45-minute drive from the ocean and set among chicken farms, Delaware resident Julie Gray said in her lawsuit, which seeks to represent everyone who participated in the Wilmington Trust Company Thrift Savings Plan. The plan was tied to the company's stock price.
"The company's myriad problems in its real estate-related lending business were so widespread and serious that the very survival of the company was at risk," according to the complaint filed Jan. 31 in federal court in Wilmington, Delaware.
The plan participants lost about $25 million, Edwin Mills, their attorney, said in a phone interview.
"As a matter of policy, we do not comment on matters of litigation," Megen Morris, a Wilmington Trust spokeswoman, said in an e-mail.
Facing regulatory pressure because of mounting losses on construction loans, Wilmington Trust agreed Oct. 31 to sell itself to Buffalo, New York-based M&T Bank Corp. for $351 million, or $3.84 a share, about half the price on the previous trading day. Founded by members of the du Pont family in 1903, the bank has reported six straight quarterly losses.
The lawsuit names current and former Wilmington Trust executives, including former Chief Executive Officer Ted T. Cecala.
Cecala knew, or should have known, that Wilmington Trust was using unreliable real estate appraisals and not trying hard enough to collect on loans, Gray claims. Cecala should have warned the management committee overseeing the retirement plan that Wilmington Trust's stock was a bad investment, according to the complaint.
Wilmington Trust fell 8 cents, or 1.8%, to $4.37 at 3:04 p.m.in New York Stock Exchange composite trading. The shares declined 65 percent last year.