declaration of jonathan a. shiffman in support of the motion of defendantwashington mutual, inc. for...

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


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


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


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


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


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


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


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.


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.


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



169/790

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.


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

WAMAIN Doc: 106447.7 45


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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

declaration of jonathan a. shiffman in support of the motion of defendantwashington mutual, inc. for...

Documents