Cal Fed Can’t Seek Lost Profit, Judge Rules

Golden State Bancorp Inc.’s California Federal Bank can’t recover potential profit it lost as a result of a 1989 accounting rule change that sparked its $1.6-billion “supervisory goodwill” lawsuit against the U.S., a federal judge ruled. U.S. Claims Judge Robert H. Hodges’ ruling doesn’t destroy Cal Fed’s case. Still, Hodges’ one-page order undermines a key Cal Fed theory and throws a curve ball at litigants seeking as much as $30 billion in 120 cases. Cal Fed and other litigants charge the government breached contracts it made with savings and loans and their owners during the 1980s to induce purchases of other, failing thrifts. The government said buyers could create a paper asset called supervisory goodwill and count it toward regulatory capital requirements. In 1989, Congress barred the use of supervisory goodwill and spurred a flood of lawsuits. The Supreme Court already has said the government breached contracts, at least in some cases. Cal Fed and others now are trying to prove the U.S. owes them billions of dollars in damages, and lost profit is a key element in their cases. Glendale-based Golden State’s shares fell 25 cents to close at $18.44 on the New York Stock Exchange.