CalFed Gets OK to Sell Stakes in Suit

California Federal Bank said it won permission from federal regulators to go ahead with an unusual spinoff giving shareholders a direct stake in the outcome of its huge breach-of-contract lawsuit against the federal government.

On Aug. 4, the Los Angeles-based savings and loan will distribute about 5.1 million “participation certificates” to shareholders of record as of July 14, with one certificate for every 10 shares owned.

The certificates, which represent an aggregate 25% interest in the lawsuit, will trade over the counter beginning sometime before the distribution date, spokesman James F. Hurley said Wednesday.

The bank will retain the remaining 75% interest in the 1992 lawsuit, which accuses the government of reneging on a promise of favorable accounting treatment made in the early 1980s to entice CalFed into taking over six failing savings and loans.

Regulators told CalFed it could record certain intangible assets as capital--or the bank’s cushion against losses--for as long as 40 years. But in 1989, Congress passed laws requiring thrifts to write off the assets by Jan. 1, 1995, an action CalFed says cost it $485 million.

Analysts are scratching their heads trying to figure out how the public might value the certificates. Todd Pitsinger of Friedman, Billings, Ramsey & Co. in Arlington, Va., said that even if CalFed won a major victory, the government would be unlikely to pay the full verdict in cash.