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8/8/2019 DECLARATION OF JONATHAN A. SHIFFMAN IN SUPPORT OF THE MOTION OF DEFENDANTWASHINGTON MUTUAL, INC.
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acts and omissions of government agencies and officials relating
to FIRREA and the FIRREA regulations.
2. For relief, Anchor seeks (a) restitution of the
amount of the benefit it bestowed upon FSLIC pursuant to and inaccordance with Anchor's contracts with FSLIC; (b) restitution of
other benefits conferred upon the United States pursuant to the
contracts, which constitute unjust enrichment of the United
States at Anchor's expense; (c) damages to compensate Anchor for
the government's breach, frustration and abrogation of the
contracts, the unconstitutional taking of Anchor's property, and
the other unlawful government conduct described below; and (d)
other appropriate relief.
3. In summary, this case involves deliberate conduct
oy tne government in reneging on specific fundamental contractual
commitments made to Anchor in connection with Anchor's
acquisition of eight failed or failing FSLIC insured savings
institutions. Four of the acquisitions were effected with directfinancial assistance provided by the FSLIC (the "Assisted
Acquisitions"). Anchor acquired the other four of the failing
institutions without FSLIC financial assistance in transactions
arranged by the FSLIC to prevent losses to the FSLIC insurance
fund (the "Supervisory Acquisitions").
4. In the Assisted Acquisitions, Anchor acquired fourfailing savings institutions between December 17, 1982 and
December 31, 1985 pursuant to explicit written agreements with
the FSLIC. The four Assisted Acquisitions involved First Federal
Savings and Loan Association of Crisp County, Georgia ("First
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Federal"); Peachtree Federal Savings and Loan Association ("
Peachtree"); Suburban Savings and Loan Association ("
Suburban"); and Sun Federal Savings and Loan Association ("
Sun").
5. Each Assisted Acquisition was the subject of an
express contract composed of a series of documents:
assistance agreement, a forbearance letter, resolutions of the
Federal Home Loan Bank Board ("FHLBB") as operating head of the
FSLIC, and related contemporaneous documents exchanged by Anchor
and the FSLIC.
6. In the assistance agreements, the FSLIC agreed to
provide cash, notes, and/or other financial assistance (or
various combinations thereof). In each of the Assisted
Acquisitions, Anchor agreed to assume liabilities for FSLIC
insured deposits far in excess of the value of the assets
received.
7. As a condition of incurring the excess liabilities
in the Assisted Acquisitions, Anchor insisted that such excess be
treated as "goodwill" and amortized over terms of 35, 40, and 40
years in the Suburban, First Federal, and Peachtree deals,
respectively, and, in the case of Sun, on an asset-by-asset basis
under Statement of Financial Standards ("FAS") No. 72 for periods
of from five to 19 years, respectively for the purpose of
determining Anchor's regulatory capital. In each case, the FSLIC
agreed to and, indeed, required such accounting treatment.
Anchor relied on the government's contractual commitment in
deciding to proceed with each Assisted Acquisition.
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8. In the case of the four Supervisory Acquisitions
effected by Anchor between March 31, 1983 and August 15, 1984,
the FSLIC provided no financial assistance but, again, Anchor, in
reliance on the contractual commitment of the government, agreed
to assume liabilities far in excess of the assets it received.
In each acquisition, the government and Anchor agreed that the
goodwill created from Anchor's acquisition would be included in
determining Anchor's regulatory capital for periods determined in
accordance with GAAP, up to 40 years in the case of Standard.
9. The government, in 1989, abrogated those
commitments, among others. The government's conduct is
particularly unconscionable because the contractual promises at
issue were intended by the government, and, in fact, operated as
inducements to Anchor, a strong and healthy federaily insured
savings association ("thrift institution"), to make the
acquisition of other FSLIC insured institutions that were weak
and failing.
10. Anchor's Assisted and Supervisory Acquisitions
relieved the government of the financial and administrative
burden of resolving the failures of eight FSLIC-insured
institutions. In each of the Assisted Acquisitions, the FSLIC
was required to and did determine that the cost of the resolution
was less than the cost that would have been incurred by the FSLIC
had it liquidated the failing institution (12 U.S.C.
1729(f)(4), (1982)). Further, the FSLIC was required "in
considering authorizations [for emergency interstate transactions
such as the Assisted Acquisitions to] give consideration to the
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need to minimize the cost of financial assistance . . . ." (12
U.S.C. 1730a(m)(3)(B) (1982)).
11. Not only did the Assisted Acquisitions save the
FSLIC money when compared to the cost of liquidating the failing
thrifts, they saved money when compared to resolutions effected
by the FSLIC before mid-1982. In resolutions effected prior to
that date, the FSLIC assistance more nearly equalled the deficit
in the failing institution's assets. For example, in 1981,
Anchor had acquired two other failing thrifts [Guardian and New
York & Suburban] with FSLIC assistance. In those two
transactions, the FSLIC discharged its obligations, although therelative cost to the FSLIC was higher than in the Assisted
Acquisitions. The cost of the Assisted Acquisitions was lower by
comparison because Anchor, not the FSLIC, absorbed the losses
from the failing institutions.
12. In the case of Suburban, the largest of the
Assisted Acquisitions, Anchor took on liabilities that exceededSuburban's assets by over $400 million. The FSLIC provided cash
of $50,875,000 at closing and, according to an FHLBB Press
Release dated August 30, 1983, projected no further costs related
to Suburban.
13. By comparison, the total of the insured deposits
held by the four failing institutions taken over by Anchor in the
Assisted Acquisitions by Anchor after 1981, at the respective
dates of acquisition, was $2.292 billion. Similarly, the total
of the insured deposits of the four failing institutions acquired
by Anchor in the Supervisory Acquisitions was $582.0 million.
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14. In each case, an explicit condition of Anchor's
willingness to burden itself with the assets and liabilities of a
failing institution was that the transaction have a specific,
agreed effect on Anchor's regulatory capital through the
application of certain mutually agreed and accepted accounting
procedures. Anchor's contracts with FSLIC set forth the terms
and conditions pursuant to which the government could and did
induce Anchor to acquire the failing thrifts and they became
conditions in the required FSLIC approvals of the acquisitions.
The contracts expressly incorporated the government's commitment
that Anchor could count the goodwill created in the acquisitionsas an asset in its books and records for regulatory capital
purposes and amortize the goodwill over agreed-upon periods.
15. In addition to promising that Anchor could
amortize goodwill over 35 years, in the Suburban acquisition, the
FSLIC required Anchor to issue a security, the Income Capital
Certificate ("ICC"), to the FSLIC in exchange for a promissory
note of the same principal amount issued by the FSLIC. lt was
agreed that the ICC, which was a new type of security created to
be issued to the FSLIC in assisted acquisitions specifically to
bolster the acquirer's regulatory capital, would be included in
computing Anchor's regulatory capital. Indeed, the United States
expressly required and agreed that Anchor count the goodwill and
the ICC as acceptable regulatory capital.
16. The inclusion of goodwill in computing capital was
consistent with generally accepted accounting principles ("GAAP")
then in effect, and neither Anchor nor FSLIC would have or could
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have approved the contracts or Anchor's acquisition of the
failing thrifts unless the goodwill resulting from each
acquisition and the ICC would be included by Anchor in
calculating its regulatory capital. Without including the
goodwill and the ICC, Anchor's own regulatory capital levels
would have fallen below the required minimum level and, indeed,
Anchor would have become insolvent, for regulatory purposes. The
government's contractual promises thus were the sine aua non of
the Assisted Acquisitions and the Supervisory Acquisitions by
which the government sought to, and did, dramatically reduce its
financial obligations.
17. Pursuant to the contracts, Anchor conferred
benefits upon the United States in an aggregate amount at least
equal to losses and expenses that would otherwise have been
incurred by the FSLIC.
18. Anchor would not have agreed to acquire the failed
thrifts unless the government had agreed to permit the goodwilland the ICC (or preferred stock) to be included in its capital
and permitted the goodwill to be amortized over periods of up to
40 years. FSLIC would not have approved the acquisitions if the
effect would have been to render Anchor insolvent. The
government agreed that, for regulatory capital purposes, Anchor
could continue to amortize the goodwill over periods of up to 40
years respectively.
19. Anchor has fully and faithfully performed all its
obligations under the contracts.
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20. The United States, however, has repudiated and
breached its fundamental contractual commitments concerning the
approval of and requirement to include Anchor's goodwill for
extended periods and the ICC in calculating its regulatory
capital. As a result of FIRREA, the FIRREA regulations, and
government conduct following FIRREA, tho United StatAg now
requires contrary to the contractual commitments lt made to
Anchor, and contrary to GAAP -- that the goodwill created from
Anchor acquisitions not be counted as an asset for regulatory
capital purposes. In addition, the Cumulative Preferred Stock,
into which the ICC was ultimately converted when Anchor became astock-type savings bank in 1987, was not eligible for inclusion
in either core or tangible capital for regulatory purposes after
FIRREA.
21. The effect of the government's repudiation of its
commitments and directives to Anchor was to cause Anchor's
regulatory capital position to be radically altered from that ofan institution that significantly exceeded its regulatory capital
requirements to one with a significant regulatory capital
deficit. On December 5, 1989, before implementation of the
Office of Thrift Supervision's ("OTS") FIRREA Capital Regulation
(12 C.F.R. Part 567), Anchor's regulatory capital requirement was
approximately $306 million. Anchor's capital, computed in
accordance with its agreements with the government, exceeded $492
million. At that time, Anchor's regulatory capital was, thus,
approximately $186 million in excess of the requirement.
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22. After giving effect to the OTS FIRREA Capital
Regulation, Anchor was subjected to three new requirements which
did not allow it to include all the goodwill created in the
acquisitions (or the ICC) in determining its regulatory capital.
Its new tangible capital requirement was approximately $124
million and it had a negative tangible capital of approximately
$205 million, producing a tangible capital deficit of over $329
million. Anchor's new leverage capital requirement was
approximately $251 million. Deprived of the assets agreed to by
the government, Anchor's total leverage capital was a negative
$81.1 million, producing a deficit of over $332 million.
Anchor's new risk-based capital requirement was $281 million andAnchor's risk-based capital was a negative $81 million, producing
a deficit of over $361 million.
23. If Anchor had been able to include all of its
supervisory goodwill and the ICC in computing its regulatory
capital as it has been promised, Anchor's capital would have
exceeded each of the new regulatory capital requirements.
24. Even though the government repudiated its promises
to Anchor, GAAP still permits Anchor to include goodwill in
determining its shareholders' equity. At June 30, 1994, Anchor
still had over $94 million in goodwill on its GAAP books, despite
having sold many of the acquired assets in its effort to reduce
its regulatory capital requirements and increase its regulatorycapital.
25. Anchor was seriously harmed by the government's
breaches. Prior to the enactment of FIRREA, Anchor exceeded its
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regulatory capital requirements, while as a direct result of
appiicable provisions immediately after its passage and the
promulgation of regulations thereunder which repudiated the
government's promises to Anchor, Anchor was at least $329 million
below its minimum regulatory capital requirements. In order to
avoid being closed by the government and to achieve capital
compliance, Anchor was forced, among other things, to seil
branches and earning assets, to reduce its size, to exchange its
loan portfolio for a lower yielding but lass risky portfolio of
mortgage-backed securities, immediately to seil a valuable
subsidiary under distress-sale conditions, and to go through theexpensive and otherwise unnecessary formation of a holding
company.
26. In addition, as a direct and foreseeable result of
the government's repudiation of its contractual promises to
Anchor which caused Anchor to be undercapitalized, Anchor was
subjected to substantially increased costs of doing business andprecluded from accessing the capital markets. Anchor was
prevented from engaging in existing profitable lines of business
and from taking advantage of significant opportunities which were
consistent with Anchor's pre-FIRREA plans. These improperly
imposed constraints, costs and lost opportunities have placed
Anchor in a financially weaker position than it would have
occupied had the government not repudiated its promises.
27. The government's conduct represents a fundamental
breach, frustration and abrogation of the contracts, and
constitutes a deprivation of Anchor's valuable property in
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violation of applicable constitutional requirements. For that
unlawful government conduct, Anchor seeks relief in this action
in the form of compensation for the damages Anchor suffered as a
proximate result of the government's repudiation, restitution of
the benefit Anchor bestowed upon the government, and such other
relief as is warranted by the proof adduced.
JURISDICTION
28. This court has jurisdiction over the subject
matter of this action under 28 U.S.C. 1491(a).
THE PARTIES
29. Anchor is a federally-chartered savings bank, with
its home office in Hewlett, New York. Anchor commenced
operations in 1868 as a New York state-chartered mutual savings
bank, and converted in 1980 to a federally-chartered mutual
savings bank. Pursuant to the approval of the Federal Home Loan
Bank Board ("FHLBB"), Anchor converted from mutual to stock form
on or about April 1, 1987. Anchor's business is, and at alltimes relevant to this action has been, primarily devoted to the
financing of single-family residential housing. As of March 31,
1989, Anchor held approximately $5.8 billion in mortgage loans
and mortgage-backed securities secured by residential loans, and
had provided approximately $7 billion in residential mortgage
loans since 1983.
30. Suburban Savings and Loan Association ("Suburban")
was, until its merger into Anchor effective August 31, 1983, a
state-chartered savings and loan association based in New Jersey.
Suburban's deposit accounts were insured by the FSLIC.
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31. Guardian Federal Savings & Loan Association (
"Guardian") was, until its merger into Anchor effective April
30, 1981, a federally-chartered savings and loan association
based in New York. Guardian's deposit accounts were insured by
the FSLIC.
32. New York and Suburban Federal Savings and Loan (
"New York & Suburban") was, until its merger into Anchor
effective May 29, 1981, a federally-chartered savings and loan
association based in New York. New York & Suburban's deposit
accounts were insured by the FSLIC.
33. First Federal Savings and Loan Association ofCrisp County ("First Federal") was, until its merger into Anchor
effective December 17, 1982, a federally-chartered savings and
loan association based in New York. First Federal's deposit
accounts were insured by the FSLIC.
34. Peachtree Federal Savings and Loan Association ("
Peachtree") was, until its merger into Anchor effective
December 17, 1982, a federally-chartered savings and loanassociation based in Georgia. Peachtree's deposit accounts were
insured by the FSLIC.
35. Standard Federal Savings and Loan Association (
"Standard Federal") was, until its merger into Anchor effective
March 21, 1983, a federally-chartered savings and loan
association based in Georgia. Standard Federal's deposit
accounts were insured by the FSLIC.
36. Tri-City Federal Savings and Loan Association ("Tri-City") was, until its merger into Anchor effective July 1,
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1983, a federally-chartered savings and loan association based in
Georgia. Tri-City's deposit accounts were insured by the FSLIC.
37. Heritage Federal Savings and Loan Association (
"Heritage") was, until its merger into Anchor effectiveSeptember 30, 1983, a federally-chartered savings and loan
association based in New York. Heritage's deposit accounts were
insured by the FSLIC.
38. United Federal Savings and Loan Association of
Waycross ("United") was, until its merger into Anchor effective
August 15, 1984, a federally-chartered savings and loan
association based in Georgia. United's deposit accounts were
insured by the FSLIC.
39. Sun Federal Savings and Loan Association ("Sun
Federal") was, until its merger into Anchor effective December
31, 1984, a federally-chartered savings and loan association
based in Florida. Sun Federal's deposit accounts were insured by
the FSLIC.
40. The FSLIC was an agency of the United States until
abolished by FIRREA in 1989. FSLIC insured the accounts of
depositors up to $100,000 in certain savings institutions,
including Suburban, Guardian, New York & Suburban, First Federal,
Peachtree, Standard Federal, Tri-City, Suburban Federal,
Heritage, United, Sun Federal and Anchor, and the FSLIC alsoenforced compliance by such institutions with various regulatory
requirements designed to safeguard FSLIC's deposit insurance
fund.
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from capital. (HOLA S 5(t)(9), 12 U.S.C. S 1464(t)(9)). A
transitional rule, recognizing the effect of the exclusion on the
government's promises concerning goodwill in supervisory cases,
permitted very limited amounts of supervisory goodwill (initially
not more than 1.5% of assets) to be included in regulatory
capital for a limited period but required total elimination of
all supervisory goodwill from regulatory capital after December
31, 1994. (HOLA S 5(t)(3), 12 U.S.C. S 1464(4)(3)).
46. FIRREA provides that it "shall not affect the
validity of any right, duty, or obligation of the United States,
the [FSLIC, the FHLBB,] or any other person" which arose under
the FSLIC's authorizing statute prior to FIRREA (FIRREA 401(
f)(1)). FIRREA further provides that "all orders, resolutions,
determinations, and regulations [of the FSLIC and the FHLBB
issued prior to FIRREA] shall continue in effect according to [
their terms] and shall be enforceable by or against" the FDIC or
the Director of OTS, as the case may be, until terminated orsuperseded "in accordance with law." (FIRREA 401(h)).
STATEMENT OF FACTS
Factual Background
The Thrift Industry and the Thrift Crisis
47. The thrift industry (composed of savings and loan
associations and savings banks) in the United States has, since
the Great Depression, been a subsidized legislative creation to
facilitate home ownership. The thrift industry has been subject
to comprehensive regulatory control.
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48. In order to provide finance for residential
housing, Congress enacted three primary statutes that have
controlled the thrift industry. In 1932, Congress enacted the
Federal Home Loan Bank Act ("FHLBA") which created the FederalHome Loan Bank System to provide subsidized sources of funding to
home mortgage lenders. (Act of July 22, 1932, 47 Stat. 725, 12
U.S.C. SS 1421, et. seq.) In 1933, Congress enacted the HOLA
which authorized the FHLBB to charter federal savings and loan
associations to provide a uniformly regulated national system of
housing lenders. (Act of June 13, 1933, 48 Stat. 128, 12 U.S.C.
SS 1461 t sea.) In 1934, Congress enacted Title IV of the
National Housing Act which created the FSLIC to insure accounts
and authorized the FSLIC to examine state-chartered, federally
insured savings associations. (Act of June 27, 1934, 48 Stat.
1255, 12 U.S.C. SS 1724 et. seq).
49. The industry remained largely unchanged until the late
1970s. In 1977, federal savings and loan associations had verylimited powers. They were allowed to make loans secured by
savings accounts, to make loans secured by first liens on
residential property located within 100 miles of their home
office or in the state where the home office was located up to
$55,000 per dwelling, and, subject to percentage limitations and
other conditions to invest in certain conservative investments.
Their funding was heavily dependent on passbook savings with
limited certificate of deposit funding. The interest rates which
thrifts could pay were limited by Regulation Q of the Federal
Reserve Board ("FRB").
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50. On June 1, 1978, banks and thrifts were allowed to
offer money market deposits to compete with money market mutual
funds, however, thrifts were limited in the amount of interest
that could be paid to one quarter of one percent over the
Treasury bill rate. At December 31, 1978, pursuant to Regulation
Q, thrifts were limited to 8 percent as a maximum interest rate
on certificates of deposit of eight years or more with lower
rates for shorter term instruments (and up to 9.66 percent on the
then newly authorized money-market time deposits). At December
31, 1978, over 82 percent of the assets of federally insured
savings and loan associations were in mortgage loans that, onaverage, yielded 8.47 percent in interest according to the FHLBB.
Starting in 1978, the upward pressure on interest rates led to
significant changes in government policy that had a disastrous
effect on the thrift industry.
51. At the October 1979 meeting of the Open Market
Committee of the Board of Governors of the Federal ReserveSystem, a decision was taken to change monetary policy to combat
inflation rather than attempting to restrict interest rates. As
a result, the FRB permitted interest rates to rise dramatically
over the next several months so that the prime rate on May 22,
1981 reached 20.5 percent.
52. On January 1, 1979, there were 4,048 FSLIC-insured
institutions of which 10 were insolvent and 194, while solvent,
had less than 3 percent net worth. On January 1, 1983, the
number of institutions was down to 3,287 of which 222 were
insolvent and another 916 had less than 3 percent net worth.
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This massive list of failures was produced because the thrifts
had to pay more to attract funds as deposits than they could earn
on their mortgage loans. The decline in capital occurred without
marking-to-market the heavily underwater mortgage loans that
comprised 80 percent of their portfolio.
53. The FSLIC was obligated to insure any losses
incurred by depositors (up to the maximum amount which was raised
in 1980 to $100,000 per insured depositor). At December 31,
1979, the FSLIC had aggregate reserves of approximately $5.8
billion representing approximately 1.269 percent of insured
liabilities. The FSLIC could not deal with the impending
failures with its available cash reserves.
54. During 1981, the FSLIC provided financial
assistance in the cases of 30 failed savings and loan
associations that were resolved in 23 separate transactions. In
the 7 cases resolved during the first five months of the year,
the FSLIC provided assistance equal to the shortfall in the
failed institutions' assets so that, on acquisition, the assets
acquired were roughly equal to the liabilities assumed by the
acquiring institution. During the first five months of 1981, the
FSLIC incurred a total cash outlay of approximately $932.8
million in resolving 7 problem cases with total assets of $1.538
billion. Thus, the total outlay amounted to 60.6 percent of
total assets and, according to the FSLIC's own computations, the
total net cost was $344 million or 22.4 percent of assets.
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The FSLIC Action Plan
55. Intthe middle of 1981, the FSLIC embarked on a new
method of resolving failures which included the use of income
capital certificates, interstate mergers, and a dramatic
reduction in the infusion of FSLIC cash. The 23 cases resolved
during the last seven months of 1981 held over $12.3 billion in
assets and involved a total outlay of less than $64 million or
0.5 percent of assets, with a total present value estimated cost
of $633 million or 5.1 percent of total assets.
56. The reduction in cost, which was necessary for the
survival of the FSLIC, was accomplished by inducing institutions
like Anchor to participate in acquisitions in which they received
a small amount of cash in relation to the liabilities assumed.
The financial assistance provided by the FSLIC did not make up
for the significant deficiency in the assets the acquirors
received when compared with the liabilities they assumed.
Rather, the difference was made up on the acquiror's balancesheets by the creation of goodwill in an amount equal to the
I l i e r e n c e b e t w e e n t h e fair market value of the liabilities
assumed and the assets acquired on the date of the acquisition (
which is the minimum amount saved by the FSLIC under its action
plan) and, on occasion, by the issuance of securities such as the
ICC.
57. The FSLIC-sponsored acquisitions were to be
accounted for under the "purchase method" of accounting. Under
purchase accounting (which, under GAAP, is applied to all
corporate mergers in all industries, except those which meet a
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its report to the President and Congress of the United States
dated July 27, 1993 (the "Report"), the Commission stated:
In a series of steps, beginning withcontinuing forbearance in 1982, the federal
government sought to avoid the costs ofwidespread S&L failures. But with each step,the costs grew larger and the problems moreintractable.
Report at 3.
60. The FHLBB and the FSLIC published numerous rules
and guidelines addressing the treatment of supervisory (including
assisted) mergers, the treatment of capital instruments like the
ICC, and the accounting methods to be employed. For example:
From 1973, the FHLBB's regulations have required that FSLIC-insured institutions prepare reports tothe FSLIC on the basis of GAAP, except to theextent that the FSLIC explicitly requiresotherwise. (12 C.F.R. 563.23-3)
The FSLI C reg ulati on c ontro llin g mer gers,consolidations, and purchases of assets and assumption of liabilities exempted transactions "instituted for supervisory reasons" from significant requirements. (12 C.F.R. 563.22(d),
43 Fed. Reg. 47159, 47162, October 12, 1978) On December 15, 1980, the FHLBB promulgated final
regulations authorizing the inclusion of MutualCapital Certificates in the regulatory capital ofcertain savings institutions, as mandated byCongress in the Depository InstitutionsDeregulation and Monetary Control Act of 1980 (Pub. L. No. 96-221, 94 Stat. 132 "DIDMCA"). (45Fed. Reg. 82154, Dec. 15, 1980)
On June 9, 1981, the FHLBB promulgated regulationsthat authorized the FHLBB to waive the provisionsof its regulations governing the merger offederally chartered savings associations in thecase of transactions "deemed necessary to avertinsolvency or imminent failure of an
association . . . ." (12 C.F.R. 552.15, 46 Fed.Reg. 30488, June 9, 1981)
On August 13, 1981, the FHLBB adopted Resolution No. 81-463 which withdrew previously promulgated
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proposed regulations that would have had theeffect of precluding the use of GAAP in connectionwith mergers of savings institutions. The FHLBBindicated that it would consider the capitaleffect of purchase accounting on a case-by-casebasis rather than through the adoption ofregulations more restrictive than GAAP. (A copyof Resolution 81-463 is appended hereto as Exhibit
A and incorporated herein by this reference asthough set forth in full.)
On September 1, 1981, the FHLBB issued RMemorandum 31b to the professional staff of itsOffice of Examinations and Supervision confirmingthat "accounting for goodwill in accordance withGAAP is acceptable." R Memorandum 31b indicatedthat ft]he period of amortization should not,however, exceed forty years." (A copy of RMemorandum 31b is appended hereto as Exhibit B andincorporated herein by this reference as thoughset forth in full.)
On September 14, 1981, the FHLBB promulgated afinal rule confirming that any securities that "constitute peimanent equity capital in accordancewith generaily accepted accounting principles"would, if approved by the FSLIC be included in aninstitution's regulatory capital (12 C.F.R. 561.13, 46 Fed. Reg. 45593, September 14, 1981)
The FHLBB's "merger policy statement" addressedsuch matters as legal considerations, antitrustconsiderations, managerial and financial aspects,
fairness, disclosure, accounting for goodwill, andtax liabilities and was "a statement of theFHLBB's] general policy on merger and transfer
proposals. lt [did] not ordinarily apply tomergers and transfers instituted for supervisoryreasons." (12 C.F.R. 571.5, 46 Fed. Reg. 54724,54725, November 4, 1981)
On January 28, 1982, the FHLBB promulgatedadditional regulations addressing the issuance ofMutual Capital Certificates and their inclusion inregulatory capital. (47 Fed. Reg. 4048 and 4049,January 2, 1982)
On January 17, 1983, the FHLBB issued R Memorandum55 specifying the circumstances under which "pushdown accounting," a variant of purchaseaccounting, was appropriate. (A copy of RMemorandum 55 is appended hereto as Exhibit C andincorporated herein by this reference as thoughset forth in full.)
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On April 12, 1983, the FHLBB promulgated rulesallowing institutions in danger of failing toconvert from mutual to stock (and thereby raisecapital) under abbreviated procedures. (12 C.F.R.SS 563b.20 et. sen., 48 Fed. Reg. 15591, 15611,April 12, 1983)
On June 15, 1983, the FHLBB promulgated rulesallowing certain failing institutions toparticipate, with an appropriate merger partner,in fihm Voluntary Assisted Merger Program. (12C.F.R. Part 572a, 48 Fed. Reg. 27394, June 15,1983)
61. The Congress was aware of the problems of the
FSLIC and sought to facilitate FSLIC's efforts to resolve failing
institutions through the use of supervisory mergers and newly
created capital instruments, such as the ICC.
In 1980, the Congress, in DIDMCA, authorized theuse of the Mutual Capital Certificate to increasethe capital of deserving institutions.On October 15, 1982, the Garn-St GermainDepository Institutions Act of 1982 (Pub. L. 97-320, 96 Stat. 1469, the "Garn-St Germain Act"),was enacted. In addition to significantlyexpanding the investment powers of savingsinstitutions, the Garn-St Germain Act endorsedthree aspects of the FSLIC supervisory merger plan
here at issue.62. First, it authorized the provision of financial
assistance to facilitate the inducement of parties to merge with
or acguire failing savings associations.
"(2)(A) In order to facilitate amerger or consolidation of aninsured institution described insubparagraph (B) with another
insured institution or the sale ofassets of such insured institutionand the assumption of such insuredinstitution's liabilities byanother insured institution, theCorporation is authorized, in itssole discretion and upon such terms
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under subparagraph (A) in order tolessen the risk to the Corporationposed by such insured institutionunder such threat of instability."(12 U.S.C. S 1729(f) (Added bySection 122 of the Garn-St GermainAct)
63. Second, the Garn-St Germain Act, authorized the
FSLIC to override Federal laws and state laws and constitutions
in approving interstate acquisitions of failing savings
associations when in-state acquisitions could not be arranged
within applicable guidelines. (12 U.S.C. S 1730a(m), added by
Section 123 of the Garn-St Germain Act)
64. Third, the Garn-St Germain Act, in Title II,reaffirmed Congress' support for the use of specially created
securities by authorizing the use of the Net Worth Certificate to
bolster the capital of mutual institutions under appropriate
circumstances. (12 U.S.C. S 1729(f), added by Section 201 of the
Garn-St Germain Act)
Supervisory and Assisted Acquisitions
65. From the early 1980's, the FHLBB had proceduresfor resolving failing savings institutions. In the first
instance, examination and supervision personnel of the FHLBB
monitored the performance and financial condition of FSLIC-
insured institutions. The processes described in the 1982
Federal Home Loan Bank Board Annual Report:
As in 1981, supervision activities
during 1982 focused on active monitoring ofthose associations experiencing severedepletion of capital and on timely resolutionin instances of threatened insolvency,principally through mergers. In coordination
with supervisory agents in the Federal HomeLoan Banks and state supervisory authorities,
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supervision staff efforts were successful inresolving a large proportion of cases ofprojected insolvency without FSLICassistance. In rough terms, for everyproblem institution merged in 1982 with FSLICassistance, Live more problem institutionsdisappeared through supervisory mergerswithout the need for FSLIC assistance.
In order to facilitate the significantpace of industry consolidation andrestructuring and the timely resolution ofindividual supervisory problems, a number ofmerger and other approval authorities weredelegated to the Federal Home Loan Banksduring 1982. While increasing fiexibility inthe supervisory process, there delegationsadded new responsibilities for coordinationof national supervisory activities.
1982 FHLBB Annual Report, 30.66. When it became apparent that an institution was
likely to fail in the absence of supervisory intervention, FHLBB
personnel would contact representatives of stronger savings
institutions in the proximity of the failing institution to
explore the possibility of an unassisted supervisory merger. In
order to induce would-be acquirors to assume the liabilities (and
problem assets) of the failing institution, the FHLBB often
entered into agreements as to the future application of
regulatory provisions which would operate to the detriment of the
acquiror unless adjustments were made. These arrangements were
so central to the supervisory acquisition process that the FHLBB,
on April 24, 1984, promulgated regulatory Memorandum SP -37
addressing "Requests for Forbearances and Exception to FilingRequirements Regarding Supervisory Institutions." (A copy of SP-
37 is attached hereto as Exhibit D and incorporated herein by
this referenced as though set forth in full.)
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67. SP-37 is a directive from the FHLBB to its
professional staff which, on page 8, provides:
For purposes of reporting to the Board, thevalue of any intangible assets resulting from
accounting for the merger in accordance withthe purchase method may be amortized by(resulting institution) over a period of notto exceed ( ) years by the straight linemethod.
This forbearance generally will begranted upon the request of theresulting institution in asupervisory merger.
68. In general, the process of effecting supervisory
mergers was an informal one, in which the FHLBB's supervisory
agent, responsible for the failing institution, would deal one-
on-one with the potential acquiror, negotiate the terms of the
transaction and approve the acquisition. The negotiations were
between the acquiror and the FHLBB rather than the failing
institution, since the owners of the failing institutions were
unlikely to receive compensation in the acquisition due to the
institution's financial condition.
69. When the FHLBB was unsuccessful in attempting to
arrange a supervisory merger, which generally occurred because
the financial condition of the failing institution was such that
na potential acquiror was willing to effect an acquisition
without financial assistance from the FSLIC, the case was
administratively transferred from the FHLBB to the FSLIC forresolution.
70. The FSLIC typically would assemble a bidder's
package containing material with respect to the financial
condition of the failing institution and instructions to
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potential bidders. The FSLIC would then schedule a bidders'
conference to which representatives of potential acquirors were
invited.
71. At the bidders' conference, representatives of the
FSLIC would describe the institution in question, the bidding
process, and the legal requirements for participation in the
transaction. Representatives of the FSLIC would also respond to
questions from the audience. Bidders were asked to submit
proposals by a specific time. The bids were required to state
the nature and extent of financial assistance required, any
forbearances that were required by the bidder and any other terms
that were considered important in the transaction. Bidders were
allowed to specify various transaction structures (for example,
mergers, purchases of assets and assumption of liabilities, and
stock purchases).
72. Once the bids were received, the FSLIC would
determine the present value cost associated with each of the bids
and determine the identity of the bidder requesting the
assistance involving the least present value cost.
73. Following the passage of the Garn-St Germain Act,
acquirors from outside the home state of the failing institution
were allowed to participate in the bidding process, however, if
the bid of an in-state Institution was within $15 million or 15%of the low bid, a rebidding was required in order to give the in-
state institution an opportunity to prevail.
74. After the low bidder was identified, the precise
terms of the transaction would be negotiated between the winning
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bidder and the FSLIC. After the transaction was negotiated, the
FHLBB would adopt one or more resolutions approving the
transaction, the FSLIC would enter into the related agreements (
for example, an assistance agreement or a master agreementproviding for the issuance of securities) with the winning bidder
and the transaction would be closed.
75. Anchor participated in two of the early
transactions, before the FSLIC stopped funding the entire
deficit. Effective April 30, 1981, Anchor acquired Guardian
located in New York. Because Guardian's liabilities exceeded its
assets, FSLIC contributed cash or cash equivalents to Anchor tocover the excess liabilities. Effective May 29, 1981, Anchor
acquired New York & Suburban located in New York. Because New
York & Suburban's liabilities exceeded its assets, FSLIC
contributed financial assistance in the form of yield maintenance
commitments to make Anchor whole.
76. Beginning in mid-1981, in order to avoid making
financial contributions to acquiring institutions to make up for
the negative net worth of the failing thrifts, FSLIC promised
favorable accounting and regulatory treatment to the acquiring
institutions. Specifically, FSLIC agreed that the goodwill
acquired by the acquiring institution would be recognized and
accepted as an asset not only for GAAP accounting purposes but
also for regulatory capital purposes and amortized on a straight-line basis over a specific period of up to 40 years.
77. In response to the inducements offered by the
FSLIC and in reliance on the promise of being able to use these
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demonstrates that, with prudent management, the FSLIC action plan
could have workedihad the government not repudiated its
commitments.
80. The government even has had a return on itsinvestment in Anchor. In exchange for issuing the ICC to the
FSLIC, Anchor received a FSLIC note in the principal amount of
$150 million and, eventually, actually received the cash. The
ICC was eventually converted into cumulative preferred stock of
Anchor Bancorp. Anchor, in 1993, delivered to the FDIC Senior
Notes with a face amount of $71 million together with warrants to
acquire 4,750,000 shares of the common stock of Anchor Bancorp.
On October 18, 1993, the FDIC sold its $71 million of Anchor
Senior Notes and received proceeds of $72,778,825, because the
notes sold at a premium. Moreover, the FDIC received its
warrants to acquire the common stock of Anchor for 1 cent per
share, the stock has been valued as high as $17.50 per share
representing an additional return to the FDIC of approximately$83,155,000. Thus, exclusive of dividends on the preferred stock
and interest on the Senior Notes, the FDIC has received more than
full value for the $150 million investment it made in Anchor.
81. The return of the government's investment in
Anchor is, however, trivial when compared with the potential
losses to the FSLIC which were averted by virtue of Anchor's
acquisition of ten failing institutions at very limited costs to
the FSLIC. lt is unlawful, unfair, and unseemly for the
government to benefit significantly while imposing significant
losses and costs on Anchor (which have had the effect of
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substantially diminishing the financial condition, earnings, and
structure of Anchor), when Anchor epitomizes the potential
success of the FSLIC's original idea for quickly resolving
failing institutions at a minimum cost to the federal government.
The Assisted Acquisitions
The Suburban Acauisition
82. By letter of June 7, 1982, Anchor informed the
FHLBB of its willingness to acquire Suburban with FSLIC
assistance. Anchor's proposal noted the "extremely poor asset
structure of Suburban" and requested the provision of ICC's and
stated that "another key assumption reflected in the proposal is
that the amount of goodwill resulting from this acquisition would
be amortized to earnings over a 40-year period." (Emphasis
added.) Anchor's proposal opens with the following sentence:
As requested, enclosed is AnchorSavings Bank FSB's proposal toacquire by merger, utilizinqpurchase accountinq, SuburbanFederal Savings and LoanAssociation of Wayne, New Jersey.(Emphasis added)
Anchor's proposal includes a comparison of the cost of the Anchor
transaction with a "Phoenix arrangement" which was an alternative
soiution possib lity under consideration by the FSLIC together
with financial assumptions prepared in conjunction with Peat
Marwick Mitchell & Company. (A copy of Anchor's initial proposal
is appended hereto as Exhibit E and incorporated herein by
reference as though set forth in full.)
83. By the end of 1982, Suburban was losing money and
had reported negative net worth to the FSLIC. To avoid the
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substantial costs associated with liquidating Suburban, FSLIC
determined to arrange for the sale of Suburban to a financially
stable savings institution.
84. By letter of March 17, 1983, Anchor's counsel wassolicited with respect to Anchor's interest in acquiring Suburban
and invited to attend a bidder's conference in New York City in
March, 1983. (A copy of that letter is appended hereto as
Exhibit F and incorporated herein by this reference as though set
forth in full.)
85. By letter of March 23, 1983, the FHLBB confirmedthat the Suburban bidder's conference would be held at 10:00 a.m.
an Wednesday, March 30, 1983 at One World Trade Center, New York.
(A copy of the FHLBB letter is appended hereto as Exhibit G and
incorporated herein by reference as though set forth in full.)
86. The FSLIC held the bidders' conference for
Suburban on March 30, 1983. At that conference, the FSLIC
distributed bidding instructions outlining possibilities for the
submission of bids by qualified institutions to acquire Suburban.
(A copy of the bidding instructions with respect to Suburban is
appended hereto as Exhibit H and incorporated herein by this
reference as though set forth in full.)
87. On April 18, 1983, Anchor's counsel submitted its
bid to acquire Suburban (the "Bid"). The Bid called for a FSLIC
contribution of $50 million in cash and $150 million in FSLIC
notes. The Bid called for the issuance of ICC's, required that
the amount of the note given to Anchor constitute net worth for
statutory and regulatory purposes and the provision of
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incorporated herein by this reference as though set forth in
full). The FHLBB staff agreed to Anchor's purchase accounting
requirements, however, the FHLBB staff agreed to recommend that
Anchor "for purposes of reporting to the Board and the FSLIC bepermitted to adjust its assets to fair market value upon
acquisition, to amortize the value of intangibles created to such
adjustment over 35 years by the straight line method, and to
amortize to income any discount arising from such adjustment over
15 years, using the level yield method, regardless of actual
retainment experience." The FHLBB did not agree that Anchor
could use the accounting treatment which was to be used in
determining its regulatory capital for disclosure to shareholders
(in the event Anchor were to become a stock institution) or
reporting to other persons. The FHLBB response to Anchor's Bid
substantially outlined the terms of acquisitions as ultimately
effected.
90. As of June 30, 1983, Anchor reported to the FHLBBthat its net worth was approximately $135 million on total assets
of $3.3 billion, or approximately 4.1 percent. Thus, Anchor was
on solid financial footing prior to the Suburban acquisition.
Anchor was among the institutions invited to attend the bidder's
conference conducted by the FSLIC regarding the potential
Suburban acquisition.
91. On August 29, 1983, the Commissioner of the New
Jersey Department of Banking approved the supervisory merger of
Suburban into a newly created subsidiary of Anchor that had been
organized for the purpose of effecting the acquisition. The
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Commissioner's Order noted that Suburban had, as of June 30, a
negative net worth and deposits of $1.746 billion. The
Commissioner's Order, at page 2, further noted that the FHLBB had
held "two separate rounds of bidding in an effort to find aviable and cost effective solution." Despite an effort to
fashion a solution involving institutions within the state of New
Jersey, the Commissioner became "convinced that the solution
proposed by the Federal Home Loan Bank Board must be implemented
to safeguard the depositors of this institution and to assure
continued public trust in the thrift industry in New Jersey as a
whole." (A copy of the New Jersey Commissioner's order is
appended as Exhibit IC and incorporated herein by this reference
as though set forth in full.)
92. On August 29, 1983, the FHLBB adopted a 15-page
resolution approving Anchor's acquisition of Suburban. FHLBB
Resolution No. 83-470 addresses each aspect of the supervisory
acquisition. (A copy of the FHLBB Resolution No. 83-470 isappended hereto as Exhibit L and incorporated herein by this
reference as though set forth in full.)
93. In Resolution No. 83 - 470, the FHLBB found that "
severe financial conditions exist which threaten the stability
of Suburban, which is now irreversibly insolvent . . . ." (page
3). At page 9, the FHLBB noted that "severe financial conditions
exist which threaten the stability of a significant number of
institutions, the accounts of which are insured by the FSLIC . .
. and of insured institutions possessing significant financial
resources . . . ." The Bank Board noted that "Suburban is a
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failing institution that is eligible for assistance" and that the
Merger and the Acquisition of control of [Suburban] by Anchor
would lessen the risk to the FSLIC . . ." The FHLBB noted that
despite efforts used "to solicit practicable offers from
prospective purchasers or merger partners" and considering "the
need to minimize the cost of financial assistance . . . no in-
state insured thrift institution or in - state savings and loan
holding company made an offer to acquire Suburban, the estimated
cost of which was within 5% or $15 million, whichever is lower,
of the offer of Anchor to acquire Suburban; and the offer of
Anchor to acquire Suburban presents the lowest expense and leastrisk to the FSLIC of any offer submitted for Suburban . . (
Emphasis added) On page 14, the FHLBB required an opinion that
the acquisition will be accounted for in accordance with GAAP,
except that for purposes of reporting to the Bank Board "push-
down" accounting is used to reflect the acquisition and the cash
contribution by the FSLIC is deemed a contribution to net worth
and booked as direct credit to capital.
94. On August 30, 1983, the FHLBB issued to Anchor a
certification that Suburban was insolvent and a letter confirming
the forbearances requested by Anchor. (A copy of the FHLBB's
letter of August 30 is appended hereto as Exhibit M and
incorporated herein by this reference as though set forth in
full.)
95. On August 30, 1983, Anchor and the FSLIC entered
into a Master Agreement providing for the issuance of $150
million principal amount of ICC, a copy of the Master Agreement
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is appended hereto as Exhibit N and incorporated herein by this
reference as though set forth in full.)
96. On August 30, 1983 Anchor and the FSLIC (and
Anchor's subsidiary created to acquire Suburban) entered into an
assistance agreement (the "Suburban Assistance Agreement"). (A
copy of the Suburban Assistance Agreement is appended hereto as
Exhibit 0 and incorporated herein by this reference as though set
forth in full.)
97. Section 10 of the assistance agreement addresses
accounting principles. Section 10 of the assistance agreement
provides as follows:
Except as otherwise provided in thisAgreement, any computations made for thepurposes of this Agreement shall be governedby generally accepted accounting principlesas applied in the savings and loan industry,including the accounting principles in effectfor mergers and acquisitions prior to theissuance of FASB #12, permitting the use of "push-down accounting" as noted in RMemorandum #55 and those accounting
principles used by ANCHOR prior to thisAgreement, except that where such principlesconflict with the terms of this Agreement,applicable federal regulations, or otherresolution or action of the Bank Boardapproving, or adopted concurrently with, thisAgreement, then this Agreement, suchregulations, or such resolution or actionshall govern. In case of any ambiguity inthe interpretation or construction of anyprovision of this Agreement, such ambiguityshall be resolved by a third partyindependent accounting firm selected by the
CORPORATION and not previously used by ANCHORor the Bank Board for purposes of auditingANCHOR or the MERGING ASSOCIATION. For thepurposes of this section, the accountingprinciples and governing regulations shall bethose in effect on the Effective Date or assubsequently clarified or interpreted by theBank Board or the Financial AccountingStandards Board or any successor organization
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resulting from the excess liabilities over fair market value of
assets, and amortizing the goodwill over a period of 40 years on
a straight line basis.
102. Anchor was permitted and required to record $10
million of goodwill as regulatory capital to be amortized over 40
years upon the acquisition of First Federal-
103. Anchor was permitted and required to record $26
million of goodwill as regulatory capital to be amortized over 40
years upon the acquisition of Peachtree.
Sun Federal
104. Similarly, on or about December 31, 1985 Anchoracquired Sun Federal, another failing thrift, with the assistance
of FSLIC.
105. Prior to the acquisition of Sun Federal, Anchorwas on solid financial footing.
106. On or about December 17, 1985, Anchor executed an
Assistance Agreement with FSLIC which provided that for
regulatory purposes, Anchor would account for the acquisition ofSun Federal using GAAP accounting as applied in the savings and
loan industry. These GAAP accounting principles included
adjusting the asset and liability values of Sun Federal to fair
market value, recording as an intangible asset the goodwill
resulting from the excess liabilities over fair market value of
assets, and amortizing the goodwill over a period of years
determined in accordance with GAAP. (A copy of the Sun
Assistance Agreement is appended hereto as Exhibit Q and
incorporated herein by this reference as though set forth in full.)
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107. Anchor was required to record $44 million of
goodwill as regulatory capital upon the acquisition of Sun
Federal and was promised that it could include the resulting
goodwill in its regulatory capital.
Standard Federal
108. On or about March 21, 1983 Anchor acquired.
Standard Federal, another failing thrift.
109. Prior to the acquisition of Standard Federal,
Anchor was on solid financial footing.
110. Standard was a supervisory acquisition effected to
prevent the failure of Standard, but without financial assistance
from the FSLIC.
111. Anchor was required to record $31 million of
goodwill as regulatory capital upon the acquisition of Standard
Federal and was permitted to include the resulting goodwill in
its regulatory capital and to amortize it over a term of 40 years
for regulatory capital purposes.Tri-City
112. On or about July 1, 1983, Anchor acquired Tri-
City, another failing thrift, in a Supervisory Acquisition
without financial assistance from the FSLIC.
113. Prior to the acquisition of Tri-City, Anchor was
on solid financial footing.
114. On or about July 1, 1983, the FHLBB approved
Anchor's supervisory acquisition of Tri-City. Tri-City was a
supervisory acquisition effected to prevent the failure of Tri-
City, but without financial assistance from the FSLIC. For
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regulatory purposes, Anchor was permitted and required to account
for the acquisition of Tri-City using GAAP accounting as applied
in the savings and loan industry. These GAAP accounting
principles included adjusting the asset and liability values of
Tri-City to fair market value, recording as an intangible asset
the goodwill resulting fran the exregs liahilities over fair
market value of assets, and amortizing the goodwill over a period
of years determined in accordance with GAAP.
115. Anchor was required to record $9 million of
goodwill as regulatory capital upon the acquisition of Tri-City
and was allowed to include the resulting goodwill in its
regulatory capital.
Heritage
116. Similarly, on or about September 30, 1983 Anchor
acquired Heritage, another failing thrift, in a supervisory
acquisition without financial assistance from the FSLIC.
117. Prior to the acquisition of Heritage, Anchor was
on solid financial footing.
118. On or about September 30, 1985, the FHLBB approved
Anchor's supervisory acquisition of Heritage. Heritage was a
supervisory acquisition effected to prevent the failure of
Heritage, but without financial assistance from the FSLIC. For
regulatory purposes, Anchor was permitted and required to account
for the acquisition of Heritage using GAAP accounting as applied
in the savings and loan industry. These GAAP accounting
principles included adjusting the asset and liability values of
Heritage to fair market value, recording as an intangible asset
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the goodwill resulting from the excess liabilities over fair
market value of assets, and amortizing the goodwill over a period
of years determined in accordance with GAAP.
119. Anchor was required to record $59 million of
goodwill as regulatory capital upon the acquisition of Heritage
and was allowed to include the resulting goodwill in its
regulatory capital.
United
120. Similarly, on or about August 15, 1984 Anchor
acquired United, another failing thrift in a Supervisory
Acquisition, without financial assistance from the FSLIC.
121. Prior to the acquisition of United, Anchor was onsolid financial footing.
122. On or about August 15, 1984, the FHLBB approved
Anchor's supervisory acquisition of United. United was a
supervisory acquisition effected to prevent the failure of
United, but without financial assistance from the FSLIC. For
regulatory purposes, Anchor was permitted and required to accountfor the acquisition of United using GAAP accounting as applied in
the savings and loan industry. These GAAP accounting principles
included adjusting the asset and liability values of United to
fair market value, recording as an intangible asset the goodwill
resulting form the excess liabilities over fair market value of
assets, and amortizing the goodwill over a period of years
dete/wined in accordance with GAAP.
123. Anchor was required to record $9 million ofgoodwill as regulatory capital upon the acquisition of United and
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requirements and had stringent restrictions imposed on its
operations. In addition, even the portion of supervisory
goodwill that Anchor was allowed to include was effectively
required to be amortized over five years rather than the periods
expressly agreed to by the FSLIC.
The Effect of FIRREA On The ICC
127. During late 1986, Anchor decided to convert from
mutual to stock form, and began obtaining necessary regulatory
approvals for the transition.
128. In September 1986, in order that the instrument
continue to be treated as an asset in computing regulatory
capital, the FSLIC and Anchor exchanged the ICC for a Permanent
Income Capital Certificate ("PICC").
129. In conjunction with this conversion, the ICC was
first converted into a PICC with terms economically more
attractive to FSLIC. The essential purpose of this exchange, and
the reason for Anchor to agree to terms more favorable to FSLIC,
was to ensure that the instrument could continue to be fully
included in Anchor's capital under both GAAP and regulatory
requirements.
130. As the first step of this process, on or about
September 30, 1986, Anchor and FSLIC entered into an Exchange
Agreement pursuant to which the ICC issued by Anchor to FSLIC in
connection with the Suburban acquisition in the face amount of
$150 million was exchanged for the PICC with the face amount of
$157 million. The terms of the PICCs provided, among other
things, for quarterly payments of dividends to FSLIC when and as
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declared by Anchor. In accordance with those terms, Anchor paid
FSLIC a total of $5.9 million in cash dividends from September
1986 through March 1987.
131. Pursuant to the terms of the Exchange Agreement,and upon Anchor's conversion from mutual to stock form on or
about April 1, 1987, FSLIC further exchanged the foregoing PICCs
for 3.14 million shares of Anchor cumulative preferred stock,
which shares also provide for quarterly dividend payments when
and as declared by Anchor. In accordance with the terms of the
cumulative preferred stock, Anchor has paid to FSLIC with respect
to such stock an additional $2.9 million in cash dividends for
the fiscal year ended June 30, 1987, an additional $14.1 million
in cash dividends for the fiscal year ended June 30, 1988, and an
additional $14.3 million in cash dividends for the fiscal year
ended June 30, 1989.
132. Both Anchor and FSLIC, as parties to the Exchange
Agreement, intended to guarantee the continued treatment of
FSLIC's investment in Anchor as regulatory capital following the
contemplated conversion of Anchor from mutual to stock form, in
accordance with the terms of the Assistance Agreement, the Master
Agreement, and related documents. As discussed in Paragraph 60
above, the FHLBB, at 12 C.F.R. S 563.13, had stated clearly that
any security that counted as permanent equity capital under GAAP
would, if approved by the FSLIC, be included in regulatory
capital. (See FHLBB Resolution No. 86-1070, approving the
exchange which explicitly "approves the inclusion of PICC's
issued to the FSLIC as net worth." (Resolution 86-1070 is
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Anchor's Claims For Restitution and Unlust Enrichment
136. By repudiating and abrogating the contractual
commitments of the FSLIC indeed, its contractual mandate
s
that the goodwill Anchor acquired through its acquisitions of the
eight thrifts described above and that the ICC (cumulativ