ABCP - Ambase

[PSDFinancier]

Has anyone taken a look at this litigation play? As one of the last of the Winstar-related cases, and the trial court's decision for a $205M damages award (vs. a market cap around $70M), there seems to be a good chance for a great return. Plus the management's note a few weeks ago that they might settle with the government before the appeals deadline of May 19th. What do people think?

[JAllen]

It's very interesting, isn't it PSD? 

 

For those not familiar at all, Ambase is a 'Winstar' related case.  During the 80s, the FSLIC, the Federal Savings and Loan Corporation induced certain S+Ls to acquire others by allowing 'supervisory goodwill' to count as bank capital.  It was agreed that this goodwill was going to be amortized over various time periods to let the banks grow tangible capital into this accounting 'supervisory goodwill'. 

 

During the crisis part of the S+L crisis FIRREA was enacted which took away the now struggling (insolvent on paper as most banks were during the crisis, including WF) banks' ability to have supervisory goodwill count as capital.  Doing so rendered the banks that had formerly assisted FSLIC in earlier acquisitions (thus preventing Federal bank insurance payouts and other costs) insolvent enabling the FDIC to take them over.

 

A few things that are noteworthy from the few days I spent researching Ambase and other Winstar cases (not a lawyer):

 

• the Winstar case law is very firmly established after twenty years
  
• I think the press release said that the government tried to settle (in other similar cases plaintiffs settled for pennies on the dollar) but the company wants to take its chances with the govt's appeal
  
• this case has essentially been the second half of Bianco's career; he was brought on to manage the bank, then the government took it away during the S+L crisis after FIRREA
  
• clearly Bianco doesn't want to settle; his family owns a bunch of the stock and he's been working on this case for twenty years
  
• With many cases original damages were whittled down; Ambase is no different: they originally had three other claims (lost profit expectancy damages and another one); the breach of contract stuck
  

 

Some links and files:

 

[*]http://en.wikipedia.org/wiki/Financial_Institutions_Reform,_Recovery,_and_Enforcement_Act_of_1989

[*]http://en.wikipedia.org/wiki/United_States_v._Winstar_Corp.

[*]http://sec.gov/Archives/edgar/data/20639/000002063912000008/form8k3082012.htm

 

[PSDFinancier]

Pof4520, did you like the situation enough to be involved? I took a look through some of the precedents and was convinced, but really would love to hear if anyone else, and in particular any lawyers/legally-oriented folks, found this one interesting. After all, one looks at the recent run in GYRO following its big litigation win, and can't help but feel hopeful that we get a 2x or 3x bagger on Ambase, perhaps in very short order. Plus, like you said, there seems to be a far greater set of precedents to draw from here than GYRO had. That said, I wonder if Bianco and Ambase would not be inclined to settle. After all, based on precedents, there's the chance that they would have to wait as long as another 1.5-3 years. I think they win based on my read of the cases, but I've got to imagine that Bianco in particular does not want this to drag out much longer. He's not exactly the youngest guy in the world, so maybe that incentivizes them to settle by the 5/19/12 deadline?

[JAllen]

Yes, we have a small position.  There is no telling how long the appeal will take.  I don't think Bianco will settle; when the govt. tries to settle they offer pennies on the dollar; that doesn't seem to be what he's interested in. 

 

I think this quote from the 8-K is particularly interesting: Preliminary discussions between representatives of the Company and of the DOJ regarding a possible settlement of the Supervisory Goodwill legal proceedings have taken place in recent months.  In light of those discussions, the Company does not intend to contest the DOJ’s motion.

 

Why wouldn't they even contest the motion to appeal?  Perhaps to speed the process up/not slow it down? It's like they think they have it 'in the bag' so to speak. 

 

But the market is basically saying: It's going to take a long time if they win to actually get the money AND there's a 50%+ chance (market cap is about 30% of after-tax award plus some timve-value discount) that the govt's appeal will overturn the ruling.  The judge that has written the opinions has been at the Court of Claims (the court that hears claims against the Fed. Govt) since 1985 and was the chief judge there for fifteen years - he's no idiot which I think further reduces the chances of his ruling being erroneous and getting appealed.  My guess is that <20% of cases are overturned. 

 

Oh and another thing: the Breach of Contract trial was over years ago (something like 2006) and presumably was appealed.  This appeal is for the damages trial only.  Perhaps the govt. can only get a reduction in damages at this point?

[JAllen]

A really great number to know would be the percent of total opinions written by Judge Smith have been overturned; the percent of Winstar damages opinions that have been overturned; and also, the percent of Judge Smith Winstar case damage opinions that were overturned....

[bobp]

"AmBase Corporation (ABCP) ("AmBase" or the "Company") is pleased to announce that on October 19, 2012, the Company received $180,650,000 (one hundred eighty million, six hundred fifty thousand dollars) in accordance with the previously announced settlement agreement in the Supervisory Goodwill legal proceedings.."

 

This puts an end to one of the last Winstar cases,  stemming from the 1992 seizure of Carteret Savings. Yep, twenty tears! Incredible. There's a good summary already posted above.

 

There's about 45 million shares outstanding. They are to receive a gross-up to cover taxes, according to the settlement announcement. They announced they hope to pay a dividend of 1.50 to $2 before the end of 2012. What they plan to do with the rest of the cash I don't know. They have no real business. The stock is trading at around 2.90 today.

 

Here's another old summary of the case: http://www.nytimes.com/2011/10/02/business/carteret-savings-bank-case-refuses-to-die.html?ref=ambasecorp&_r=0