The University of Washington has filed a lawsuit to terminate a contract with its bank after a lending agreement accumulated losses of at least $7.5-million for the university, according to the Seattle Post-Intelligencer.
The lawsuit, filed last week, asserts that Northern Trust, an investment-management service, violated the contract by refusing to act on the university’s attempts to withdraw money from a failing lending program.
According to the lawsuit, filed in King County Superior Court, Northern Trust lent $750-million of the university’s money under a securities lending agreement beginning in April. But after learning on September 17 of a $750,000 loss as a result of the lending, the university tried to terminate the agreement by both e-mail and fax. Northern Trust responded the next day, saying the university had lost $5.3-million. The figure would eventually grow to $7.5-million by September 23, but the bank said the money would not be returned.
“We gave instructions, and the instructions were not followed,” Norm Arkans, a university spokesman, told the Post-Intelligencer.
The university’s contract with Northern Trust, its bank for 20 years, stipulated that university officials could end the lending agreement “at any time by written notice.” The lawsuit alleges that despite the request to terminate the lending, university officials were told by the bank that it would continue to lend the university’s money and the funds would not be returned.
Northern Trust had acted as custodian for about $1.4-billion of the university’s money, nearly half of its estimated $3-billion endowment. The bank is required to respond to the lawsuit in writing within the next two months.
The bank said in a statement released today that its clients, including the university, had shared in a “steady stream of revenue” in the past, but that the investment pool had recently been under stress because of “unprecedented market conditions.” The bank also said that its efforts to “provide support” for its clients would cost it about $150-million.
The news came in the same week that nearly 1,000 colleges were unable to remove money from the Common Fund for Short Term Investing after Wachovia froze the fund’s accounts pending its purchase by Citigroup. —Reeves Wiedeman
