Government Refuses To Settle S&L; Lawsuit

Glendale Federal Bank offered to settle its $1.5 billion lawsuit against the federal government by funneling the proceeds into public-benefit programs, but was rebuffed by the Justice Department.

Last August an appeals court ruled 9-2 to uphold GlenFed’s suit charging the government with breach of contract.

The case stems from the early 1980s, when the government had no money to bail out failing S&Ls. Instead, it induced healthy S&Ls like Glendale to take them over by allowing the thrifts to use certain accounting practices that would cover the bad institutions’ losses.

The savings and loan bailout legislation passed in 1989 phased out such loopholes. Glendale was then forced to take $500 million in write-offs over five years, escaping seizure only through a financial restructuring that severely diluted the value of its shares.