Astoria Awarded $436M in 'Goodwill' Case

The U.S. Court of Federal Claims has awarded Astoria Financial Corp. $436 million in damages in a case involving a breach of contract by the U.S. government in the handling of insolvent savings and loans in the early 1980's.The U.S. government has been fighting these "goodwill" cases for nearly a decade, and very few plaintiffs have been successful in pressing their claims. Despite the court's ruling, Astoria cautioned investors that the government probably won't give up. Management "anticipates that the U.S. government, given its previous practice in similar cases, will file an appeal," Astoria said. The case involves an assistance agreement that Long Island Saving Bank made with the federal S&L regulators in 1983 to take over an insolvent institution. Instead of providing cash to address the capital deficit, the regulators allowed LISB to use an accounting convention called "goodwill" as capital, which could be amortized over 40 years. In 1989, when Congress passed a $50 billion S&L bailout bill, it also disallowed the use of goodwill as capital. This drove many institutions with goodwill contracts into financial hardship and even receivership. The U.S. Supreme Court later ruled that the federal government had breached the contracts and thrifts like LISB could seek damages. Astoria, which is based in Lake Success, N.Y., acquired LISB in 1998 and continued to seek damages.