A cease and desist order from the Federal Deposit Insurance Corp. is requiring Lippo Bank to slash problem assets, boost capital, and scrutinize management.
The Los Angeles-based bank is owned by James Riady, an Indonesian businessman whose family controls the Lippo Group, a Jakarta-based conglomerate that figures prominently in the ongoing investigation into the fund-raising activities of the Democratic National Committee.
The FDIC concluded, after an exam begun in September, that Lippo Bank lacks sufficient equity capital and reserves, and is suffering operating losses because of a large number of bad loans and inadequate management.
The FDIC also cited Lippo Bank for violating the Federal Reserve Board's Regulation O, governing loans to insiders. While the order did not detail the violation, a Lippo Bank executive said it did not involve insider loans-which the institution does not make-but rather the failure to provide disclosures from one or two directors.
Lippo, which consented to the FDIC order, moved quickly to appear responsive, announcing that "major" corrective actions are already under way. These include an overhaul of lending and collections procedures, a steep reduction in "substandard" loan assets, and an increase in Tier 1 capital from its current level of less than 6% of assets to at least 7.5% by the end of the year.
The bank also has hired the Secura Group, a Washington consulting firm headed by former FDIC Chairman William M. Isaac, to evaluate the bank's current management. The FDIC ordered a management review, requiring Lippo to ensure its chief executive officer has the "proven ability" to turn the bank around.