Judge Backs Thrift Against Regulators

WASHINGTON - A federal judge dealt S&L regulators a setback this week when he ruled that a Virginia savings bank can return four sick thrifts it bought from the government in the 1980s if regulators insist on stripping goodwill capital from the bank's books.

Charter Federal Savings Bank has a valid contract with the government to count $62 million of supervisory goodwill as capital, Senior Judge Glen M. Williams of the U.S. District Court for the Western District of Virginia decided. He blocked the Office of Thrift Supervision and the Federal Deposit Insurance Corp. from seizing the institution or banning loans and investments.

The ruling, handed down on Tuesday, was the first by a federal judge telling banks they can cancel thrift purchase from the OTS' predecessor, the Federal Home Loan Bank Board.

Appeal Is Planned

The thrift agency is sure to challenge the decision. "We haven't filed a notice of appeal, but we will," said Marc Adams, an OTS spokesman.

For now, the ruling is a lifesaver for Charter Federal, an $800 million-asset thrift in Bristol, Va. The OTS deemed the thrift insolvent in March 1990, and ordered it to rid its books of goodwill capital. Congress banned thrifts from counting supervisory goodwill as capital in 1989, but roughly 25 thrifts have challenged the law.

Charter Federal would be in full compliance with capital rules if it gave back the weak institutions, according to its attorney.

"If they take the four institutions back, we're in extremely good shape," said Thomas M. Hughes, a partner with Winston & Strawn.

Tough to Untangle

But the solution is impractical, said Reid Nagle, president of SNL Securities, Charlottesville, Va. "It would be virtually impossible to go back and separate out the assets and liabilities that went into the merged institution," he said.

Judge Williams stopped short of requiring the regulators to take back the thrifts now. The next step depends on whether the regulators "take action that will make performance of the contract impossible," he said in a written opinion.

Charter Federal acquired its goodwill capital when it took over two thrifts in 1982 and two more in 1985, at regulators' behest.

In other news, a federal district judge in Washington upheld the thrift agency's bid to require TransOhio Savings Bank, Cleveland, to wipe $110 million in supervisory goodwill off its books. Judge Norma Holloway Johnson also upheld the OTS's authority to set individual minimum capital requirements.

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.