Golden State Warrants Sink After Award Is Thrown Out

Golden State Bancorp securities that entitle holders to a share of a potential multimillion-dollar court award fell 20% on Tuesday after a federal appeals court said an earlier verdict overcompensated the San Francisco-based thrift.

On Friday, the court struck down a $909-million award won by Golden State in a breach-of-contract suit against the federal government over a 1989 accounting rule change.

Golden State litigation warrants fell 30 cents to $1.16 Tuesday on Nasdaq, the first trading day since the ruling. The warrants fell as low as $1.03. They traded as high as $5 each in late-1998.

“Not only is this thing not speeding up, we don’t seem to be coming to closure,” said Charlotte Chamberlain, an analyst at Jefferies & Co. “It’s discouraging.”

But Golden State’s common stock rose 33 cents to close at $27.72 in trading on the New York Stock Exchange.

Holders of the warrants will get 85% of the net, after-tax proceeds from the suit. Golden State, controlled by financier Ronald O. Perelman and banker Gerald Ford, will receive the rest.

The U.S. Court of Appeals for the Federal Circuit in Washington voted 3 to 0 to return the case to U.S. Claims Court Judge Loren A. Smith for a new damage calculation, which could still mean hundreds of millions of dollars. Further appeals are possible.

Golden State said in a statement that it plans to “vigorously pursue” its case for damages. The thrift’s general counsel, Christie Flanagan, said the company was “disappointed” that the court sent the case back to Smith.

The so-called Glendale suit, named for the company’s Glendale Federal Bank subsidiary, was a test case designed to set the rules for dozens of other savings-and-loan lawsuits and as much as $30 billion in claims against the U.S. government. Among the other cases is a pending Golden State appeal in a second suit that won $23 million at the trial court level.

The suits, fallout from the S&L; crisis of the 1980s, contend that acquiring thrifts spared regulators from having to seize struggling rivals and pay off depositors.

In exchange, the S&Ls; 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 instantly into default.

Writing for the Federal Circuit, Judge S. Jay Plager said the promise “had substantial value” to Golden State, which put supervisory goodwill on its books when it acquired struggling First Federal Savings & Loan of Broward County, Fla., in 1981.

Still, Plager said, the $909 million awarded by Smith was “based on a speculative assessment.”

Smith said he made his award to Golden State largely as “restitution” for benefits he said the government received in the takeover of First Federal.

Lawsuit-related securities of a predecessor of Golden State, Cal Fed Bancorp, gained Tuesday amid optimism that courts are upholding the banks’ basic rights to damages. Cal Fed Bancorp goodwill certificates rose 56 cents, or 6.7%, to $3.

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Golden Shares

Golden State Bancorp’s shares weren’t hurt by a federal appeals court ruling last week that rejected a damages award of $909 million.

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GSB, monthly closes and latest on the New York Stock Exchange

Tuesday: $27.72, up 33 cents

Source: Bloomberg News