Newspaper article St Louis Post-Dispatch (MO)

S&l Ruling Could Cost $20 Billion

Newspaper article St Louis Post-Dispatch (MO)

S&l Ruling Could Cost $20 Billion

Article excerpt

A U.S. Supreme Court ruling Monday in favor of the savings and loan industry could cost taxpayers up to $20 billion. It also could put money in the pockets of people who were owed money by defunct S&Ls in St. Louis.

Many S&Ls, including several in St. Louis, failed after the government in 1989 changed the way it measured the solvency of thrifts.

In Monday's ruling in Washington, the court said the government broke its contracts with three S&Ls after encouraging them to take over other institutions.

The court said S&Ls could seek damages from the government.

The change in accounting rules played some role in several St. Louis S&L collapses, including the failure in 1990 of the $700 million-in-assets Germania Bank.

The dispute stems from the early to mid-1980s, when federal regulators were pressing healthy S&Ls to take over weak and failing ones.

The government let the purchasers keep "goodwill" on their books and count it toward their capital requirements. Goodwill is an accounting fiction created when a business is bought for more than its assets are worth. Theoretically, it represents the value of customer loyalty, technical know-how and other intangible assets.

In the midst of the savings and loan crisis of 1989, Congress eliminated such goodwill and tightened other capital rules, plunging many S&L books into red ink.

The court said Monday that healthy S&Ls had counted on the goodwill when they agreed to buy failing S&Ls. The government broke an agreement when it changed the rules, the court said.

The government argued that it did not promise to let the S&Ls count the assets in the future. But Justice David Souter called that argument "fundamentally implausible."

If that were so, Souter said, "the very existence of (the S&Ls) would then have been in jeopardy from the moment their agreements were signed."

His opinion was joined by Justices John Paul Stevens and Stephen G. Breyer and in part by Justice Sandra Day O'Connor. Justices Antonin Scalia, Anthony M. …

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