Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, March 30, 1993                   TAG: 9303300079
SECTION: BUSINESS                    PAGE: B6   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

CHARTER LOSES ITS CASE HIGH COURT RULES AGAINST S&L

Without comment, the high court rejected Charter Federal Savings Bank's argument that the government had reneged on an agreement to let it write off the thrifts' $62 million in debts over 25 years.

Thomas Buchanan, Washington lawyer for Charter, said the company has been putting together a plan to put itself in full compliance with the government's requirements for capital strength. The Office of Thrift Supervision has been reviewing the plan, Buchanan said, and it is expected to be implemented "shortly."

At issue was Charter's agreement in 1982 and 1985 to take over four troubled Virginia and Tennessee thrifts. In exchange, the government agreed to let Charter count the thrifts' debts as an asset called "supervisory goodwill."

Federal regulators approved similar accounting breaks for savings and loans willing to take failed thrifts off the government's hands in the early 1980s. The institutions were allowed to count supervisory goodwill toward their minimum capital requirements and take up to 40 years to write it off.

In 1989, however, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act to restructure the massive cleanup of failed savings and loans. Among other provisions, the law required thrifts to phase out their use of supervisory goodwill assets to meet their capital requirements.

Charter said the law caused it to suddenly fall short of its minimum capital requirement. The new Office of Thrift Supervision rejected its proposal to increase its capital, which Charter said left it vulnerable to government takeover.

Charter sued the government, saying it had breached the agreement to let the thrift treat the debts as a capital asset.

A federal judge ruled that the government had the right to cancel the agreement. But the judge said if cancellation of the deal would lead to a government takeover of Charter, the takeover of the four troubled thrifts also must be canceled.

The 4th U.S. Circuit Court of Appeals reversed that ruling, saying the government had not promised Charter not to change the rules on thrift capital requirements.

"If Charter wanted to avoid the risk of regulatory change, it could have demanded more explicit assurances," the appeals court said.

In the appeal acted on Monday, Charter said it recognized Congress' power to change the law, but that "does not absolve the government of its obligation to compensate, or otherwise provide a remedy to, the injured party."

Buchanan, the Charter lawyer, said the firm has "a potentially viable claim" for its loss of goodwill that could be decided in federal Claims Court. Other thrifts have won similar cases when the court ruled that the government had breached their contract, he said.

Justice Department lawyers contended that even if the government had made a binding promise to Charter, it would be impossible to cancel the takeovers so many years after they occurred.

Charter had no immediate comment on the Supreme Court ruling.

The company operates 26 branches in Virginia and Tennessee, including the Roanoke Valley. It has assets of about $745 million.

Staff writer George Kegley contributed to this story.