Settlement Outlook Brighter For Sterling Judge’s Comments In Similar Case Raise Hopes
Prospects for a settlement favorable to Sterling Financial Corp. in a lawsuit against the federal government appeared to improve Thursday with the release of a judge’s comments on a similar case.
U.S. Court of Claims Judge Loren Smith said Glendale Federal Bank has an “exceedingly strong” and “convincing” case in a dispute seen as a bellwether for about 120 similar lawsuits by current and former savings and loans against the U.S. government, including one filed in 1990 by Spokane-based Sterling.
His remarks buoyed shares of Glendale’s parent company, Golden State Bancorp Inc., and prompted significant increases in the stock prices of other companies pursuing comparable claims that could cost the federal government $10 billion to $20 billion. Sterling shares closed up $1.50 at $20.38, the highest price in more than five years. Volume was 148,000 shares.
“I thought I was bullish about the thrifts’ cases, but it almost looks like Judge Smith is more bullish than I am,” said analyst Thomas Theurkauf of Keefe Bruyette & Woods Inc. “It’s very positive, not just for Glendale, but for many other thrifts.”
Smith’s comments came in a transcript, unsealed Thursday, of a closed-door meeting with lawyers on July 29, days after Glendale finished presenting its evidence in a trial that started last February.
Like dozens of other current and former thrift owners, Glendale says the government should pay damages because a 1989 law changed accounting rules and wiped billions of dollars in paper assets known as “supervisory goodwill” off the books of S&L companies. The current Glendale trial focuses on the thrift’s claim that it should not only be paid for $565 million in goodwill assets that were directly eliminated, but also should get more than $1 billion extra for profit opportunities it lost because the rule change hindered Glendale’s ability to make new loans.
Sterling claims amount to around $90 million.
During the meeting with lawyers, Smith said Glendale’s case for lost-profit damages is “as strong as any I’ve heard” during his 12 years on the bench. While noting that he hadn’t heard the government’s side of the story yet, Smith said he was, at that point, inclined to “grant the plaintiffs the recovery they’re seeking, essentially (in) the same amounts they’re seeking.”
The judge’s favorable reaction to Glendale’s case, analysts said, bodes well for other thrifts because, in many cases, claims for lost profit opportunities far outstrip the actual amount of goodwill assets lost.
“This should be a signal to the market to start pricing the value of the goodwill lawsuits into the shares” of companies with pending claims, said Credit Suisse First Boston analyst David Dusenbury.
Justice Department spokesman Joe Krovisky, however, said Smith’s assessment of the case came before the government started presenting its evidence. The U.S. began calling its witnesses Tuesday.
“We are confident that when he hears our case, he will change his mind,” Krovisky said.
, DataTimes