In the first settlement of a regulatory goodwill lawsuit, the government has reached a $39 million deal with Statesman Group, the parent of a failed Iowa thrift.
Sources familiar with the deal said the government will pay $9 million in cash and forfeit $30.1 million in Statesman preferred stock that the Federal Deposit Insurance Corp. has held since the 1989 seizure of the company's Des Moines thrift, Statesman Bank for Savings.
A Justice Department spokeswoman confirmed that a settlement has been reached, but declined to comment further until a formal agreement is filed at the U.S. Court of Federal Claims.
The government soon is expected to settle four other goodwill claims made by failed thrifts, including one owned by Winstar Corp. However, Justice is not expected to budge in cases where surviving thrifts are seeking billions of dollars to cover the profits they could have made if they were not burdened by the loss of goodwill.
"For the large open thrifts, this doesn't have much effect at all," said a lawyer who follows goodwill issues. "They will have to continue the litigation."
Glendale Federal Bank has the largest outstanding claim. The California thrift was the first to litigate and is seeking more than $1 billion in damages. That trial has been going on for nearly 18 months and a decision is not expected until December.
The goodwill disputes stem from the 1980s thrift crisis. A nearly broke Federal Savings and Loan Insurance Corp. enticed healthy thrifts to acquire their ailing peers. In exchange, the thrifts were allowed to count the difference between the sick institution's assets and liabilities as capital for up to 40 years.
Congress, however, eliminated regulatory goodwill as part of the 1989 thrift bailout law. The sudden loss of capital caused scores of thrifts to fail and drove dozens of others to the brink of financial ruin. The thrifts filed breach-of-contract suits and are collectively seeking more than $20 billion from the government.
Justice previously has refused to settle, arguing at various times that the contracts were not valid, that Congress has the right to break contracts with impunity, and that the breach of them did not result in any harm to the thrifts.
The Supreme Court ruled in 1996-in a case involving Statesman-that the government was liable for breaking its word and it ordered the federal claims court to decide how much, if anything, these thrifts should receive.
Lawyers following the cases said the Statesman settlement indicates a willingness by the government to resolve some cases. "This is significant for the failed thrifts," said one lawyer who follows goodwill issues. "It sets a baseline for future settlements."
In 1988, the FSLIC helped Statesman, a diversified financial services firm, purchase four failing thrifts in Iowa and Florida by agreeing to count $26 million of accounting goodwill as capital.
The deal required Statesman to capitalize the thrift with $8.4 million in cash and preferred stock. Under the settlement, investors will get their cash back and the stock will be returned.
Statesman Group was bought in 1994 by Conseco Inc., a life insurance and investment management company based in Carmel, Ind. Charles J. Cooper, a partner at the Washington law firm of Cooper, Carvin & Rosenthal, who represents Statesman, declined to comment.