Magazine article American Banker

$193M Goodwill Award; Judge Pins Failure on U.S

Magazine article American Banker

$193M Goodwill Award; Judge Pins Failure on U.S

Article excerpt

Old Stone Corp., which 20 years ago bought an ailing Rhode Island thrift that brought down its entire business, has won the third-largest supervisory goodwill judgment against the federal government.

Judge Robert H. Hodges Jr. of the Court of Federal Claims ruled Thursday that overzealous regulators were directly responsible for the failure of Old Stone Bank FSB in 1993, and he granted the parent company $192.5 million in restitution.

The biggest judgments have come in the past two years in the same court, which awarded $384.1 million in a case involving Glendale Federal Bank FSB and $305.4 million in one involving Westfed Holdings.

Howard Cayne, a lawyer at Arnold & Porter who represented Old Stone, said the Old Stone ruling is the first in which a judge said the government's actions caused a financial institution involved in a goodwill case to fail.

"We are very gratified," Mr. Cayne said.

The 12-year-old case grew out of the savings and loan crisis. In the 1980s the now-defunct Federal Home Loan Bank Board, trying to keep the savings and loan insurance fund from being drained, encouraged healthy financial institutions to buy troubled thrifts.

The board often provided incentives to acquirers, including the creation of "supervisory goodwill" to offset the adverse effects on capital requirements.

But according to the 1996 Supreme Court ruling in United States v. Winstar, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 violated the government's contracts with financial institutions on the use of supervisory goodwill in capital calculations.

More than 100 institutions filed suit because of FIRREA, and many of the cases, like Old Stone's, have been tied up in the courts for years.

Old Stone bought Rhode Island Federal in 1984 and merged it with a bank it already owned to form Old Stone Bank FSB. …

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