WASHINGTON - "Goodwill" just doesn't seem like the right word.

The word brings to mind holiday cheer and charity donations.

To the thrift industry, "goodwill" means something quite different.

In the 1980s, regulators enticed thrifts to buy ailing S&Ls with a lucrative lure: supervisory goodwill picked up in the deals could be counted as capital for up to 40 years. But Congress reneged in 1989 and forced thrifts to quickly write off the goodwill.

While it is hard to put a price on broken promises, some thrifts are trying. In a lawsuit against the government, Glendale Federal Bank has said it is due $1.4 billion. But another big California thrift, California Federal Bank, wants to let the market set the price.

This month, CalFed said it would issue its shareholders a new security that would share in 25% of any cash proceeds from CalFed's goodwill suit. The goodwill participation certificate would trade on the Nasdaq.

"This is a pretty creative way to let the marketplace recognize that there may be some value here that is yet to be recognized," said Edward G. Harshfield, CalFed's president and chief executive officer, who refuses to say how much the government owes his institution.

CalFed's goodwill case has been put on hold pending a decision in the Glendale case.

Some investors are skeptical about CalFed's new securities.

"It is unclear that you are creating any incremental value for shareholders," said Orin S. Kramer, general partner at Boston Provident Partners, a hedge fund in Fort Lee, N.J., that specializes in financial institutions. "I would be dubious that many other institutions with goodwill claims would follow suit."

But CalFed's move has certainly drawn investors' attention to the notion that roughly 50 thrifts could be due extra cash if the government loses a string of pending goodwill cases.

"People are actually talking about it now," said Nick Adams, a Boston- based portfolio manager of First Financial Fund, a closed-end mutual fund that invests in small banks and thrifts.

But would he purchase the security? "I wouldn't buy anything on account of a goodwill case," said Mr. Adams, who thinks thrifts deserve to win their lawsuits. "The government has a way of wheedling out of its responsibilities."

Recent congressional testimony by Federal Deposit Insurance Corp. Chairman Ricki Helfer that goodwill cases could cost the government up to $15 billion, spawned rumors that the government is negotiating hefty settlements.

But would-be buyers fantasizing about a pot of goodwill gold should be cautious.

"The rumors about early settlement talks are unfounded," an adviser to the Clinton Administration said. "The market has gotten ahead of itself here."

Glendale Federal has no plans to issue a goodwill security, said its chairman and chief executive officer, Steven J. Trafton. CalFed's approach amounts to, "not only counting your chickens but also selling them before they hatch," he said.

Besides, Mr. Trafton said he believes such a security could complicate any settlement proceedings with the government.

"It is far easier to have it remain a case which involves an asset of the bank and a contract between the bank and the government, rather than unnecessarily bringing into the picture yet another class of security holders whose potential interest might not be identical with those of the shareholders of the bank," Mr. Trafton said.

Mr. Harshfield said owners of the CalFed securities would not have an independent voice in any settlement negotiations.

"There is no interest being conveyed in the claim itself," Mr. Harshfield said. "What this is is a distribution mechanism of the results of that claim, if any."

Whatever the outcome of the debate that has spawned so much ill will between thrifts and the government, there is one point on which all can agree.

Washington-based consultant Richard F. Hohlt summed it up: "Goodwill it ain't; heartache it is."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.