Glendale Federal Bank is likely to win a $1.9 billion suit accusing the government of reneging on its pledge to let acquirers of failed thrifts use favorable accounting rules, according to court documents unsealed Thursday.
Loren A. Smith, chief judge of the U.S. Court of Federal Claims, urged government officials during a closed-door meeting July 29 to settle the case. Judge Smith said the California thrift had presented one of the most effective cases he has seen in 12 years on the bench, the documents show.
"Plaintiffs have put on an exceedingly strong and, I think, convincing case," the judge said. "If a decision were to be made today ... I would grant the plaintiffs the recovery that they're seeking."
Glendale's is the first of more than 100 so-called goodwill suits that collectively seek more than $10 billion in damages. Judge Smith made his comments after Glendale lawyers wrapped up their case, but before the government presented its side.
Judge Smith sealed the record of the meeting and forbid participants from discussing it, saying he was afraid it would affect the thrift's stock price. But he overturned his order Thursday in response to a request by Glendale.
Release of the transcript lifted the stock prices of thrifts with goodwill claims.
"The stocks are on a run," said Thomas O'Donnell, an analyst at Smith Barney in New York. "It is going on across the board. This transcript has cleared up a lot of confusion about the trial."
"This is the first puff of white smoke that Glendale is going to win and win big," said Charlotte A. Chamberlain, an analyst at Jefferies & Co. in Los Angeles. "This is great news.'
The suits date back to the early 1980s when a nearly broke Federal Savings and Loan Insurance Corp. enticed healthy thrifts to acquire their ailing peers by allowing them to count as capital for up to 40 years the difference between the failing institution's assets and liabilities.
Congress, however, pulled the plug in the 1989 thrift bailout law, ordering these institutions to eliminate regulatory goodwill from their books within five years. This caused scores of thrifts to fail or become woefully undercapitalized and led shareholders and management to file more than 100 breach-of-contract suits. The Supreme Court ruled last year that the government was liable for breaking its word and ordered the claims court to decide how much money the thrifts should receive.
The court documents show that Judge Smith spent much of the meeting urging the parties to settle, saying he was willing "to do pretty much anything" to help, including delaying the trial. Lawyers for the government and Glendale promised to discuss a settlement, but those talks apparently went nowhere because the government began presenting its case this week.
Glendale's request to unseal the transcript came after the litigants traded a particularly nasty set of briefs. The government accused Glendale officials of lying about why they restructured the thrift's balance sheet in the early 1990s. Glendale officials refuted the charge and in the transcript of the July 29 meeting, Judge Smith backs Glendale. "The cross- examination did really no damage to the credibility of the witnesses," the judge said.
The government is expected to call witnesses through October. Glendale's rebuttal could stretch into early next year. A decision is unlikely before next summer.
Officials at the July 29 meeting included Glendale chairman Stephen J. Trafton, Assistant Attorney General Frank W. Hunger, and Richard S. Carnell, assistant Treasury secretary for financial institutions.