Glendale Federal Bank will seek as much as $1.86 billion in damages from the government in its regulatory goodwill suit, according to court documents filed last week.
The award would compensate the California thrift for Congress' 1989 decision to renege on favorable goodwill accounting treatment.
In filings with the Federal Claims Court here, Glendale presented three estimates of how much it is owed, each based on a different theory of how to calculate damages in breach of contract cases.
The court's decision on which theory to apply is expected to set a precedent that would affect 150 other pending goodwill lawsuits. These suits could cost the government as much as $20 billion.
In the case of Glendale, the thrift took over an ailing peer in 1981, and in return the government agreed to allow Glendale to count the intangible goodwill in the transaction as capital. But lawmakers changed their minds and ordered the institution to write off the goodwill over five years, rather than 40 years.
The Supreme Court ruled in July that the government was liable for breaking its word and ordered the Federal Claims Court to decide how much the government should pay in damages.
In the first damages theory presented by Glendale - one that would be most costly for the government - the thrift argues that its November 1981 acquisition of First Federal Savings and Loan Association of Broward County, Fla., saved the government insurance fund $811 million. Those funds could have been invested to return $1.031 billion. The government also received about $18 million in additional exam fees for a grand total of $1.86 billion.
Under this "restitution" theory of damages, the thrift is entitled to recover the entire amount, according to banking consultant Nevins D. Baxter, whom Glendale hired to estimate damages.
Glendale presented a second option, calculating damages under the "total expectations" theory. This covers what the thrift could have earned if the government had not eliminated regulatory goodwill. It includes lost earnings, higher costs of funds, bigger deposit insurance premiums, and larger operating expenses. This amounts to at least $1.4 billion.
The final option Glendale presented is known as "reliance." It claims the government must compensate the thrift for all the money it spent complying with the contract. This includes $753 million invested in the Broward County thrift and about $50 million in related tax losses, excess deposit insurance, and other expenses.
Glendale is expected to present evidence at a Dec. 11 hearing in favor of all three theories. It will then endorse one theory but leave the other two available as options for the court to choose among.
