U.S. won't challenge $276 million judgment for PSFS investors

Posted: June 25, 2011

The epic fight over Philadelphia's defunct Meritor Savings Bank moved closer to a conclusion Friday, nearly 19 years after federal regulators seized the bank.

The Department of Justice decided not to ask for a U.S. Supreme Court hearing in a long-running lawsuit that resulted in a $276 million judgment in 2009 against the Federal Deposit Insurance Corp. for illegally taking over Meritor, which operated as Philadelphia Saving Fund Society for 176 years.

The decision clears the way for an estimated 3,000 shareholders - many of whom worked at the institution founded in 1816 and who own just a few hundred shares each - to collect roughly $4.50 per share. The payments are expected by the end of the year.

"It's a great day, and it's a great win," said Frank P. Slattery Jr., a Meritor director and investor who launched the court fight in 1993. "It was a long hard fight. We kept at it, thank God," he said.

A small shareholder and former PSFS employee, Stephanie Murt of Northeast Philadelphia, was glad to hear the good news about her Meritor stock.

"At one point, I was willing to sell it for 50 cents a share, but my manager told me to hang on," said Murt, who has 459 shares acquired through a retirement savings plan.

PSFS, which developed deep community roots by collecting children's deposits in schools for generations, got in trouble after agreeing in 1982 to take over the failing Western Savings Bank, preventing a government bailout that would have cost an estimated $1 billion.

In exchange for saving the government money, PSFS was credited by regulators with $800 million in "supervisory goodwill," a government-approved accounting gimmick that made PSFS seem financially stronger than it really was.

The merger was followed by a Meritor expansion spree nationwide that led to a string of losses and forced it to sell off assets to try to survive. The government then set aside the 1982 agreement, leading to the bank's seizure and sale to Mellon Bank for $181 million in December 1992.

Slattery, represented by Thomas Buchanan of Winston & Strawn in Washington, has had numerous court victories in the case over the years, including in the Supreme Court in 1996, but the government always fought back until now. One of those appeals reduced the award from $372 million.

Buchanan estimated that $30 million of the $276 million would go to expenses.

Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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