First American Is Losing Business In Wake of Scandal at Parent BCCI

WASHINGTON - The scandal surrounding the Bank of Credit and Commerce International is driving business away from First American Bank-shares, the U.S. banking company it controls.

Some long-standing customers have pulled deposits and curtailed other business with First American's banks in Georgia, Maryland, Virginia, and Washington, according to bankers at rival institutions.

Fear and Confusion

While the company remains strongly capitalized and none of its banks are in any danger of failing, the bad publicity is taking a toll, conceded Paul G. Adams, First American's chief operating officer.

The seizure of BCCI assets in eight nations earlier this month "has generated an incredible amount of confusion and problems," he said in an interview. "Some customers read that all of the BCCI assets were seized and have a fear that that could happen here."

He confirmed that there has been a net outflow of deposits in recent weeks, but he said specific figures were not yet available.

In a full-page ad in the Atlanta Journal and Constitution on Sunday, First American's Georgia bank said it felt "compelled to respond to the guilt by association that is affecting our bank and causing concern to our customers and this market."

First American, which is based in Washington and has $10.6 billion in assets, had planned to run similar ads in The Wall Street Journal and the Washington Post but scrapped the idea. Company officials declined to say why.

First American is run separately from BCCI, and its operations were not directly affected by the regulator's move against the Luxembourg-based bank, which has been accused of fraud.

The Federal Reserve disclosed in March that BCCI had illegally acquired a stake in First American, which was subsequently put at 60%.

Deposit Outflow in Early '91

In April, First American reported that its deposits had fallen by $462.5 million, or 5.2%, since yearned, while assets had shrunk 3.7%. Deposits at the Maryland subsidiary declined 7%, and the Georgia bank expereinced a 6.3% drop, according to Ferguson & Co.

Mr. Adams acknowledged that some of the outflow was caused by concerns over his company's ties to BCCI. But he said part of the shrinkage could also be attributed to the company's conscious decision to run off maturing jumbo certificates of deposits in the wake of large loan chargeoffs.

Though First American has not yet released its financial statements for the second quarter, Mr. Adams said deposits actually rose by $10 million, to $8.37 billion.

Still, he acknowledged that since BCCI's assets were seized on July 5, deposits at three First American banks in the Washington area had declined by $74 million, or 1.4%. Figures for the full company are not yet available, he said. The company's banks have not increased interest rates to maintain deposits, he added.

Clients and Rivals Speak Out

Customers say they are getting nervous because they are uncertain about the bank's future.

The BCCI connection "has driven a substantial portion of our business [with First American] away," said a longtime client of the Virginia bank, who runs a publicly traded company and now is spreading his business among other area banks.

Another reason accounts are leaving: Some key First American employees have departed.

Washington bankers confess to benefiting from the turmoil.

"We have seen more business from First American in the last three or four months than [from] any other bank in town," says Dennis J. Roberts, chairman and chief executive of Reston, Va.-based Suburban Bancshares Inc., a $155-million community bank.

A Washington banker, who did not want to be identified, said that in the weeks following the BCCI closure, several law firms left First American and brought to $2 million to $3 million in new deposits to his bank.

"There no doubt is an outflow," said David M. Cordingly, a former First American executive who now is president of McLean, Va.-based Bank First. Mr. Cordingly said 10 to 12 First American customers have brought their business to his bank in recent weeks.

George Mason Bank in Fairfax, Va., grew by 25% in the first quarter, and some of the growth came from First American customers moving over their accounts, said Marshall H. Groom, George Mason's chairman.

"We can't say they have shifted because of BCCI, but they have shifted. I'm talking longterm, blue bloods of Virginia," he said.

Mr. Adams downplays First American's links to BCCI, noting the bank has just $5 million in trade letters of credit with BCCI. BCCI also has $1.4 million in deposits with the bank.

"That is the only place we have any continuing exposure to BCCI," Mr. Adams said.

Besides image problems, First American is awash in bad real estate loans. To cut costs, 250 employees were given early retirement in February, and 90 were laid off.

More job cuts could be in the offing. Late last week, the company's board decided to conduct a major restructuring of its farflung Georgia bank and its 989 employees. Of its 52 branches, 16 will be closed, and several business lines will be eliminated.

First American Corp. lost $23.2 million in the first quarter, following a $182.5 million loss in 1990, the Ferguson numbers show.

But the company remains liquid and very well capitalized. Its ratio of core capital to risk-based assets is 10.78%, well above the 4% requirement that takes effect next year. The company recently received $50 million from Sheik Zayed al-Nahyan, the ruler of Abu Dhabi and principal shareholder of First American.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.