In the midst of a financial crisis, the UW and its bank of 20 years, Northern Trust Corporation, settled a lawsuit on Oct. 3 over a disputed $7.5 million loss in the UW’s securities lending program.

The settlement came nine days after Washington filed a lawsuit over Northern Trusts’ incompliance to abide by contract terms.

“We’re happy to have reached a settlement but the terms are confidential,” said John O’Connell, public relations director at Northern Trust.

Both parties aren’t disclosing information about the settlement as part of the settlement’s agreements.

In the lawsuit, Washington cited three occasions when Northern Trust failed to respond to the UW’s attempts to withdraw or suspend money.

Between Sept. 17 and 23, Northern Trust notified the UW that losses had grown from $750,000 to $5.3 million and finally to $7.5 million. In each incident, the UW gave notice to Northern Trust to terminate its participation in the securities lending program and return its securities.

On Sept. 24, Washington filed suit, citing Northern Trusts’ failure to terminate the program, return securities and “abide by the terms of the Securities Lending Authorization Agreement.”

“The legal action we have taken is intended to ensure that our assets are protected and that we continue our strong stewardship of the university’s investments,” said Susan Ball, UW senior associate treasurer, to the Seattle P-I.

Northern Trust manages $1.4 billion of Washington’s investments — about half of the University’s endowments. Since April, the UW had $750 million in the bank’s securities lending program, allowing Northern Trust to lend the money to third parties in return for interest.

“Compared to other types of investments, this was a pretty safe and low risk investment,” said UW spokesman Norm Arkans.

The loss of $7.5 million was approximately 1 percent of the total Washington had in the program. Arkans said that the impact of the losses is “negligible” for students and the University.

“We’re in pretty good shape because of the way our investments are managed,” Arkans said. “We take a strategy that tends to ride out these harder times. But some universities are in considerably worse shape because they rely on ready money for things such as payroll.”

Endowments are long-term invest-ments that accumulate interest over time. At the UW, a percentage of the interest is used every year and the rest of the money is left to continue increasing for future returns. Donors who give endowments specify how they want the money to benefit the University.

According to the UW’s 2007 Endowment Report, $81 million from endowments was distributed by the university in 2007 — $11 million more than in 2006.

“All universities are anxious because of what’s going on in the stock market and I think it’s not just universities but also students who need to borrow money to pay for college,” Arkans said. “Money is drying up and it’s getting harder to find money to borrow.”

Reach reporter Emily Lee at news@dailyuw.com