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CalFed to Appeal Award in Regulatory Case Against U.S.

April 19, 1999|From Bloomberg News

WASHINGTON — California Federal Bank, a subsidiary of Golden State Bancorp Inc., said it will appeal a judge's award in a case against the U.S. government for a broken promise of special regulatory treatment.

U.S. Claims Judge Robert H. Hodges said CalFed was entitled to $23.3 million from the government in its "supervisory goodwill" lawsuit. The bank sought more than $1.5 billion.

The award "falls far short of CalFed's actual damages," the bank said in a statement. "The decision is flawed, and it comports neither with applicable law nor with extensive evidence and testimony presented at the trial."

The CalFed decision is the second in what is likely to be a series of damage awards issued by the federal court. The first came April 9, when a judge awarded Golden State-owned Glendale Federal a near-record $909 million in damages.

As the first of its kind, the ruling set a precedent for thrifts and their owners in some 120 similar lawsuits seeking about $30 billion.

The cases claim the government reneged on promises that had induced S&Ls to take over troubled thrifts. Among other things, regulators let the healthy institutions create a paper asset called supervisory goodwill, count it toward capital requirements and write it off over decades.

Federal regulators wanted to avoid having to close thrifts and pay off depositors, so they approached healthy S&Ls such as Golden State's CalFed and Glendale Federal to persuade them to acquire the weak ones.

But in 1989, Congress passed a financial regulations act that cut back severely on the regulatory acceptance of goodwill. CalFed and other thrifts sued the government, claiming that their agreements to take over the failing institutions were contracts.

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