U.S. May Seek to Settle Claims in S&L; Credit Suits
The U.S. is considering settlements in at least some of the 120 lawsuits that seek up to $30 billion in damages for a 1989 accounting rule change.
Los Angeles-based Coast Savings Financial Inc. said it received a letter from the Justice Department saying “it may be productive for the parties to discuss an out-of-court resolution” of the bank’s capital credit claim against the government. The bank said other companies received similar letters.
Until now, the Justice Department has vigorously fought the cases--and generally lost--at every stage.
“We are very encouraged. We think that it may be a breakthrough,” said Edward Sisson, a lawyer representing several groups pressing similar suits.
Sisson said one of his clients received a similar letter earlier this week but declined to identify the client. David Cohen, the Justice Department’s top litigator on the case, declined to comment, but a budget summary released by the Justice Department suggested that damages in the cases could cost the government from $20 billion to $30 billion.
The letters focus on a relatively narrow portion of the cases--capital credit promises made by federal regulators--and not the “supervisory goodwill” charges that constitute the bulk of the claims against the government. Coast is unusual in that the bulk of its case consists of a capital credit claim.
The suits involve promises that government regulators made to encourage investors to take over failing thrifts in the early 1980s. In some cases, regulators gave cash assistance and allowed investors to use a portion of that money to meet capital requirements.
Congress changed the rules in 1989, prompting a flood of lawsuits. In 1996, the Supreme Court said the U.S. breached a contract with Golden State Bancorp Inc.’s Glendale Federal Bank. In September, a federal judge said Glendale had an “exceedingly strong” case in its bid for $1.8 billion in damages.
Shares of Coast, which is being acquired by H.F. Ahmanson & Co., and other companies pressing similar cases rose following Coast’s announcement. Coast shares rose $2.19 to close at $65, Dime Bancorp shares rose 63 cents to $30.38 and Meritor Savings Bank shares rose 31 cents to $3.16.
