Seeking to end a seven-year court fight, Glendale Federal Bank proposed Thursday to settle its regulatory goodwill case against the government for $1.5 billion.

Under the settlement offer, Glendale Federal is promising to invest the award in low- and moderate-income and minority California communities.

"We are willing to offer the government an opportunity to settle its liability for damages that are due the bank and simultaneously advance public policy, provide jobs and housing, and improve the lives and outlook for California residents," said Stephen J. Trafton, chairman and chief executive officer of Glendale Federal.

"While it would not fully compensate the bank for the consequences of the government's breach of contract, we believe that $1.5 billion would be a fair settlement."

The settlement offer is only good until Jan. 30.

"Time is limited and the trial is nearly over," Mr. Trafton said. "The government has until Jan. 30, 1998, to negotiate the details of our proposal."

Justice Department spokesman Myron Marlin confirmed the government is discussing a deal, but declined to provide details. "We don't find it productive to discuss settlement negotiations through the media," he said. "We would prefer to do that in conversations with the attorneys."

Mel Garbow, a partner at the Washington law firm Arnold & Porter, said a deal would break the log jam that has prevented the resolution of more than 100 similar claims, which collectively seek more than $20 billion in damages.

"A settlement would be excellent," he said. "It would free up the court and create some mechanism by which other plaintiffs could value claims and reach settlements."

Community activists urged the government to accept the offer. "The government should take the deal," said John Gamboa, executive director of the Greenlining Institute in San Francisco. "It is a generous sharing by Glendale of unearned wealth."

"This is a positive offer on the part of the bank," said Alan Fisher, executive director of the California Reinvestment Committee. "It would be a good use of the funds."

This is Glendale's second attempt to settle. Its first proposal was nearly identical-the bank would drop its claim in exchange for $1.5 billion, all of which it would devote to community reinvestment activities in California.

The government rejected that offer in November 1996. But since then, the Supreme Court has ruled that the government is liable for breaking its word to let the thrift carry regulatory goodwill on its books as capital. Also, on July 29 the federal claims court judge handling the case told government lawyers that Glendale Federal was likely to win the case and urged them to negotiate a deal.

The market rewarded Golden State Bancorp, Glendale Federal's holding company, for the offer. It stock was up $1.065 to $33.25.

Thomas O'Donnell, an analyst at Smith Barney, praised the offer. "It's a smart move," he said. "It's helping the stock in the near term.

"It reassures some investors who may have been shaken up a couple of weeks when Steve Trafton announced he would sell a stake a portion of his shares."

The goodwill lawsuits date back to the days when the nearly insolvent Federal Savings and Loan Insurance Corp. tried to save money by enticing healthy thrifts to take over ailing rivals. The incentive: acquirers could count as capital for up to 40 years the difference between the failing thrift's assets and liabilities.

However, Congress in 1989 ordered the so-called "supervisory goodwill" to be eliminated within five years. The move forced scores of thrifts into financial trouble and led to more than 100 breach-of-contract suits.

The Supreme Court ruled last year that the government was liable for breaking its word and order the claims court to decide how much money the thrifts deserved.

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