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Judge Tells Metro And Bank To Deal
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The judge said that if the bank were to receive the full amount, it would be "an absolute windfall." She said that under an IRS ruling, banks are no longer entitled to the full tax benefits of the lease-back deals. Noting the potential harm to transit riders in the Washington region and elsewhere if other banks were to follow suit, she said that allowing KBC to prevail would "pull this stone wall down today."
Officials said they have tried to find other companies to replace AIG as guarantor, but few have the triple-A rating required, and in the case of one that does, a Berkshire-Hathaway subsidiary, the replacement would be expensive: It would cost Metro $50 million to $100 million to purchase additional insurance to replace AIG as guarantor in all of the deals.
Treasury officials are reluctant to step in because they would be bailing out a tax-avoidance strategy, sources familiar with Treasury's thinking have said.
The IRS has offered to settle these agreements with dozens of banks, allowing them to keep a portion of their tax benefits if they agree to settle by year's end. The judge suggested that KBC was motivated to collect payment from Metro as a way to recoup some of its tax breaks.
KBC has also suffered tremendous losses on its portfolio, records show, and a payment from Metro would cover some of those losses.
A financial adviser testifying for Metro yesterday said that the $43 million demanded by KBC would amount to an 11 percent annualized return on the bank's initial investment of $23 million six years ago.
Staff researcher Meg Smith contributed to this report.
