Golden State S&L; Damages Claim Revived
An appeals court Tuesday revived Golden State Bancorp’s claim for hundreds of millions of dollars in a suit accusing the U.S. government of breaking promises made in the savings and loan crisis of the 1980s.
The ruling will boost many of the 100-plus lawsuits over a 1989 law that banned supervisory goodwill, a paper asset that had counted toward regulatory capital requirements. The suits collectively seek as much as $30 billion.
The Federal Circuit Court of Appeals in Washington ordered a trial judge to reconsider whether that rule change, which sent thrifts scurrying to raise replacement capital, meant lower profit for Golden State’s Cal Fed thrift unit. U.S. Claims Judge Robert Hodges Jr. had rejected that theory as too speculative, awarding Cal Fed only $23 million on its $1.5-billion claim.
Hodges “erred by not permitting Cal Fed to present its evidence at a trial,” Chief Judge Haldane Robert Mayer wrote in the three-judge panel’s unanimous decision.
The securities that track the Cal Fed litigation surged on news of the ruling. CALGZ shares, which promise holders about 25% of any net recovery, rose 63 cents, or 31%, to close at $2.63 on Nasdaq. CALGL shares, riskier securities that offer the prospect of higher returns, rose 47 cents, or 63%, to $1.22, also on Nasdaq.
Golden State, a San Francisco-based holding company for the second-largest U.S. thrift, fell $1.18 to close at $28.50 on the New York Stock Exchange.
The Federal Circuit has taken a middle ground on damages in the disputes. In February, the court struck down a $909-million award won by Golden State in a separate lawsuit, telling a different trial judge to recalculate it.
The suits contend that acquiring thrifts spared regulators from having to seize struggling rivals and pay off depositors.
In exchange, the savings and loans say, regulators let thrifts create supervisory goodwill, a special asset that would count as cash for regulatory capital requirement purposes. Congress later banned supervisory goodwill, sending many institutions into instant default.
The Cal Fed case centers on three transactions to acquire six ailing thrifts in the early 1980s, including California’s Brentwood Savings & Loan Assn. and Family Savings & Loan Assn. in Nevada.
The appeals court Tuesday said the government breached contracts with Cal Fed in all three transactions. The Justice Department had argued that the Brentwood and Family takeovers didn’t include a crucial component--a specific reference to supervisory goodwill as part of an agreement authorizing a separate form of regulatory assistance.
