Golden State Awarded $381 Million
A judge Friday ordered the U.S. to pay Golden State Bancorp Inc. $381 million for breaking a promise of special regulatory treatment made during the savings and loan crisis of the 1980s.
U.S. Claims Court Judge Loren A. Smith, saying he wished he had power to order a larger award, gave the San Francisco-based thrift less than half the $909 million he had awarded in a 1999 ruling. A federal appeals court said that amount was too large and told Smith to recalculate it.
Golden State “will get significantly less than half of the amount that this court feels is the fair amount by which it has been damaged,” Smith wrote. “This is not justice. However, it is not the job of a court to legislate on what the law should say.”
Golden State’s case is one of 100 suits centered on promises made by regulators to encourage takeovers of failing thrifts. The suits say thrift acquirers spared regulators from having to seize the struggling institutions and pay off depositors, then lost money when the government reneged on the promises.
The case before Smith involved the 1981 acquisition of Florida’s First Federal Savings & Loan Assn. of Broward County by Golden State’s corporate predecessor, Glendale Federal Bank. It’s one of two such cases being pressed by Golden State, parent company of California Federal Bank.
Golden State says regulators let Glendale create “supervisory goodwill,” a paper asset that would count as cash for regulatory capital requirement purposes. Congress later banned supervisory goodwill, sending many institutions into instant insolvency and forcing others, including Glendale, to sell assets.
Golden State, which agreed in May to a takeover by Citigroup Inc., has moved to insulate itself from the unpredictable outcomes of its two suits. Holders of special securities tied to the Glendale case will get 85% of the after-tax proceeds, with the company getting the rest.
Shares of those securities, which trade under the ticker GSBNZ, have fallen from a high of $7.25 when they were issued May 8, 1998, to $1.02 on Nasdaq Friday. Investors in goodwill-related securities have grown frustrated with the limited size of the awards and the delay in resolving the cases.
GSBNZ shares rose almost 11 cents, as some investors anticipated Smith’s ruling, which was released after the markets closed. Golden State shares fell 73 cents to $32.07 in New York Stock Exchange trading.
Golden State spokeswoman Janis Tarter said the company expects to have a statement before the markets open Monday. A Justice Department spokeswoman wasn’t available.
