Magazine article American Banker

Goodwill Suits Seen Hampering Calif. Thrift Buyouts

Magazine article American Banker

Goodwill Suits Seen Hampering Calif. Thrift Buyouts

Article excerpt

By some accounts, 1997 will finally be the year of big thrift sales in California. But a lingering legacy of the thrift debacle threatens to gum up the works.

Some of the state's most desirable targets, including the nation's largest thrift, H.F. Ahmanson & Co.'s Home Savings of America, Irwindale, are tied up in complex lawsuits against the federal government that date from the thrift crisis.

Though potentially lucrative, the so-called goodwill suits raise sticky price and accounting issues.

The problem has arisen in Seattle-based Washington Mutual Inc.'s negotiations to buy $8.7 billion-asset Coast Savings Bank, Los Angeles. And some say the suits, combined with the overly rich stock prices of takeover targets, will frustrate most dealmakers this year.

Among the takeover skeptics is Edward G. Harshfield, chief executive of the former California Federal Bank, who sold the $14 billion-asset thrift to First Nationwide Bank for $1.2 billion in a deal closed in January.

"You've got Coast, Home, and Glendale (Federal Bank), all with goodwill lawsuits," said Mr. Harshfield, now vice chairman of the merged institution that bears the CalFed name. "It strikes me that the probabilities of further acquisitions (this year) are 80-20 against."

After last July's favorable Supreme Court decision on three of the roughly 125 goodwill cases, buyers and sellers in California would rather just wait for the suits to be settled, Mr. Harshfield said. Some suits may be resolved as early as this year.

The lawsuits were filed to force the federal government to pay up for a 1989 decision by Congress to outlaw favorable accounting treatment previously allowed to healthy thrifts to encourage their takeovers of troubled thrifts.

The lawsuits complicate agreement on a takeover price because it's impossible to know how much any given thrift will eventually win in its suit or when it will be paid and because the potential winnings inflate the target's current stock price. …

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