Brattle testified regarding the valuation of intangible assets in the merger of two financial institutions that took place more than 40 years ago. In June 2023, US Court of Federal Claims Senior Judge Eric G. Bruggink ruled that Brattle’s client, Citigroup, is entitled to a substantial tax deduction for the primary intangible asset that was the subject of that transaction, and subsequently rendered worthless. Judge Bruggink cited Brattle’s analysis and testimony in his decision.
Citigroup is the successor in interest to Glendale Federal Savings & Loan (Glendale). Glendale merged with the insolvent First Federal Savings and Loan of Broward County (Broward) in 1981. This merger was one of many “assisted” transactions that took place during the Savings & Loan crisis, in which a more robust thrift acquired a weaker one with the support of the Federal Savings and Loan Insurance Corporation (FSLIC). FSLIC’s assistance included providing Glendale with a guarantee that Glendale could record a supervisory goodwill asset on its books equal to the difference between the value of the acquired tangible assets and acquired tangible liabilities, and amortize this goodwill over 40 years for regulatory purposes. This “Rap Right” guarantee was a promise that the regulatory accounting treatment applied at the time of the acquisition would not be changed.
However, with the passage of the Financial Institutions, Reform, Recovery and Enforcement Act (FIRREA) in 1989, Congress eliminated this favorable treatment of supervisory goodwill. The subsequent write down of supervisory goodwill forced Glendale to withdraw from the Florida market. Claiming that the RAP Right was now worthless, Glendale (and later Citigroup) sought to record a $798 million loss and a corresponding tax deduction, a claim which the government contested on the basis that only part of the supervisory goodwill related to the RAP Right.
Latham & Watkins retained Brattle on behalf of Citigroup to value the assets acquired by Glendale. David Plastino valued the pre-existing intangible assets of Broward, and reconciled those values with valuations performed by other experts of the various elements of FSLIC assistance, including the RAP Right, to arrive at an opinion regarding the overall composition of the supervisory goodwill asset. A trial was held in the spring of 2022, and Judge Bruggink released his decision in June 2023. Relying on the valuations of several experts, including Mr. Plastino, the court was able to determine a value for the RAP Right. Judge Bruggink also ruled that Citigroup is entitled to a substantial tax deduction for the loss of the value of the RAP Right, as well as a refund for taxes paid on a damages award Glendale had won in prior civil litigation against the US government.