WASHINGTON -- Buoyed by a big legal victory, Glenfed Inc.'s chief executive called on the federal government Monday to settle a long-running dispute over S&L accounting rules.
Stephen J. Trafton, Glenfed's chairman and CEO, said that a settlement would go a long way toward solving a capital shortfall that has put its Glendale Federal Bank in danger of failing.
1989 Thrift Law a Factor
But he expressed fear that the government would file an appeal to "draw the case out as long as possible in hopes that our capital problems will get worse." That, he said, would give the regulators an excuse for seizing the California-based institution.
At issue is a provision of the 1989 thrift-bailout law that revoked the use of so-called supervisory goodwill as a component of capital. The measure required a phase-out of goodwill, and that could put dozens of thrifts out of compliance with capital requirements.
Glendale, the nation's fourth-largest thrift, charged that the government reneged on a 1981 agreement to let it count as capital some $735 million in goodwill incurred by the acquisition of a failed Florida S&L.
That agreement, struck because the government lacked the funds to close thrifts, allowed Glendale up to 40 years to write off the goodwill, which represented losses incurred by the failed S&L.
In a ruling issued late Friday, Senior Judge Loren Smith of the U.S. Claims Court here supported Glendale's position and ruled that the thrift deserved an unspecified amount in restitution.
Glendale fell out of capital compliance on March 31, in large part because of the loss of supervisory goodwill.
In a telephone interview Monday, Mr. Trafton said that "a settlement with the government would in all likelihood represent a significant step forward if not a total solution to the capital problems Glendale faces today."
He added: "Because of the strength of Judge Smith's decision, it is in everyone's best interest for the government to get together with us and try to reach an agreement."
No Comment from OTS
Robert Schmermund, a spokesman for the office of Thrift Supervision, declined to comment on any possible settlement. "The Justice Department is handling the case," he said. "If there was going to be a settlement, it would be with them, not us."
A Justice Department spokesman could not be reached for comment.
Glenfed's share were up 37.5 cent, to $4.125, in late trading Monday.
Judge Smith's ruling also applied to Statesman Savings in Waterloo, Iowa. Last February, he reached the same conclusion in a case involving Winstar Corp., a thrift holding company in Roseville, Minn.
The Claims Court rules on financial grievances filed by private parties against the federal government.
Of the three plaintiffs, Glenfed is the only that hasn't been seized by the government. It is also the largest institution so far to present such a case to the claims court.
Glendale has not yet calculated the damages it will seek as a result of the government's breach of contract, its lawyers said.
Many thrifts in similar circumstances have been watching the Glendale case carefully. As many as 40 other institutions have already filed similar suits against the government - 18 in the claims court alone. And the Glendale suit could encourage many more.
Figures Are Huge
"The amounts are staggering," said Paul Nelson, a consultant at Kirkpatrick & Lockhart. "We are talking about potentially billions of dollars."
The government had allowed about $25 billion in supervisory goodwill to be created, much of which has now been amortized. An estimated $18 billion of supervisory goodwill was still being counted as capital when the government barred such treatment in 1989, said Bert Ely of Ely & Co.
And as of March 30, $6.9 billion of goodwill was still on thrift's books, according to OTS officials.
Some of the institutions that have filed suits have already been liquidated, but are seeking financial restitution nonetheless. And many others are suffering financially and may be forced to shut down if required to deduct supervisory goodwill.
Earlier this month, Rep. John J. LaFalce, D-N.Y., in letter to the director of the Office of Thrift Supervision, Timothy Ryan, calculated that 247 thrifts with $420 billion in total assets are carrying supervisory goodwill totaling $4 billion.
Of these, he estimated, as many as 83 - with $153 billion of assets and $1.8 billion of supervisory goodwill - could fall out of compliance with government capital requirements if supervisory goodwill is erased. from their accounting records. Ms. Cummins writes for Medill News Service.