As the Federal Deposit Insurance Corp. begins to assert its right to sue on behalf of scores of failed thrifts, the number of goodwill cases could more than double to 225.
There are already more than 100 goodwill cases pending, half of which the FDIC is expected to join shortly. But the agency has inherited nearly 250 potential goodwill claims from the defunct Resolution Trust Corp., and lawyers expect half of those claims to turn into breach-of-contract cases.
The Justice Department has agreed to let the FDIC file goodwill claims within 130 days of a final decision in the first goodwill lawsuit, the so- called Winstar case. But lawyers disagree on the date of this deadline. Some argue the agency must file by Nov. 7, which is 130 days after the Supreme Court ruled that the government broke its promise to let Winstar count regulatory goodwill as capital.
But another lawyer said the clock doesn't start until Winstar wins a judgment against the government that cannot be appealed. Final action of this sort isn't expected for at least another year.
Goodwill claims are a remnant of the 1980s thrift crisis. The Federal Savings and Loan Insurance Corp. enticed healthy thrifts to acquire ailing peers by allowing them to count as capital for 40 years the difference between the sick institution's assets and liabilities. But Congress eliminated this so-called regulatory goodwill in 1989, causing scores of thrifts to fail.
The Supreme Court ruled in July that the government breached an agreement to let Winstar Corp., Glendale Federal Bank, and Statesmen Group count goodwill as capital. The U.S. Court of Federal Claims must determine how much the government must pay these institutions.
What will the FDIC do with any winnings?
Because the agency is suing as the receiver for the failed thrifts any recovery must pay off the creditors. First in line: the FDIC.
As guardian of the insurance funds, the agency is entitled to recover what it paid to close the institution. Any money left over is passed onto other creditors and then to stockholders.
The FDIC will deposit its share in the FSLIC Resolution Fund. Those funds eventually will be returned to the Treasury Department, unless Congress fails to shore up the undercapitalized thrift insurance fund.
If Congress doesn't act, then the FDIC can use the money to pay interest on bonds that were floated to help pay for the original thrift bailout, lawyers said. Interest on those bonds currently is paid by premiums on thrift deposits.
The agency, however, must win the case before it can divide up damage awards. Lawyers said the FDIC has two primary arguments.
First, it can claim that the government must compensate the thrift for the amount of money it could have made if its regulatory goodwill had not been eliminated. This traditional way of measuring damages means the thrift would be owed $100 million if it could have earned $100 million from use of the goodwill.
Second, the FDIC can assert the "wounded bank" theory, which holds that the government must repay all the costs the institution incurred because of its loss of goodwill. This means the government would be liable for the legal and accounting bills the thrift ran up trying to react to the legislative change.
These arguments will get their first test at a Nov. 21. hearing before the claims court.
