WASHINGTON - First National Bank of Chicago agreed to pay $7.9 million to settle a longstanding dispute with institutional investors, regulators announced Friday.

The settlement, reached with the Comptroller's office, was prompted by three-year-old complaints from investors over a real estate investment fund managed by the bank, the regulator said. The state of Florida stands to receive the largest payment - $2.2 million - if it accepts the settlement.

The regulator had charged First Chicago with engaging in unsafe and unsound banking practices and breaching its fiduciary duty by improperly administering the fund.

The bank had been accused of failing to comply with the regulator's requirement that it allow investors to withdraw their stakes in the fund within one year.

In the consent order, signed by chairman and chief executive Richard L. Thomas, the bank neither admits nor denies the charges.

The First Chicago Corp. subsidiary said in a statement Friday: "Creation of the settlement fund will have no financial impact on the bank's earnings because of the availability of reserves established in connection with the . . . dispute."

The 18 investors covered in the settlement may reject the bank's offer. If they accept the payments, they are barred from further court action in the matter. Most of the fund's investors were pension plans.

The enforcement proceeding by the Comptroller's office began in 1992, when the agency held a hearing to decide whether to discipline the bank over its management of the collective investment fund.

At that time, First Chicago's Institutional Real Estate Fund F was worth $478 million, and had at least 25 investors. Then, the fund had $115 million in cash and $363 million in real estate. The Comptroller's office said the fund, which is now being liquidated, holds real estate assessed at $206 million and an unspecified amount of cash.

The bank established the fund in 1972. Comptroller's office rules require the bank to distribute an investor's pro rata share of the fund within one year after the investor notifies the bank that it wants to pull out.

According to Comptroller's office documents, the withdrawal requests of about 23 investors had met the one-year requirement by May 1992, but they had not been honored. Requests for distributions with a value in 1989 of about $135 million had not been honored by May 1992.

A bank spokeswoman refused say how much investors in the fund lost or to discuss the fund's current size and number of investors.

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