Luxembourg Is Left Holding 25% Stake in First American

WASHINGTON - The multinational regulatory crackdown on Bank of Credit and Commerce International has left Luxembourg's bank regulator holding at least 25% of the stock of First American Bankshares Inc. of Washington.

The Luxembourg holding complicates efforts by the U.S. Federal Reserve Board to get the First American stock in the hands of new investors.

The regulators in Luxembourg obtained the stock last Friday when they seized control of BCCI's headquarters there, according to the Federal Reserve. Bank regulators in eight countries acted in concert against BCCI, citing evidence of massive fraud. BCCI was operating in 69 countries and had gotten control of First American without the knowledge of U.S. regulators.

Sale of Stake Was Ordered

Earlier this year, the Federal Reserve Board ordered BCCI to sell its First American stake. The order still stands, but the sale has been complicated by last week's seizure.

"We are going to have to talk with Luxembourg authorities about divestiture," said Virgil Mattingly, the Federal Reserve's general counsel. "I think the next step is to determine when the plan will be put into effect."

Mr. Mattingly said he hoped to talk within days with Luxembourg authorities about the disposition of the stock.

Loans Were Defaulted

The Fed says BCCI made loans to First American stockholders who pledged their shares as collateral. When the borrowers defaulted, BCCI took control of the stock.

The Fed was working with BCCI's law firm, Patton, Boggs & Blow, to see that the terms of the divestiture order were met. Mr. Mattingly said that since the seizure he has been unsure whether the law firm still represents the banking company. A lawyer from Patton Boggs said Tuesday he was also unsure of the client's status.

Mr. Mattingly would not comment on whether a buyer or investor is willing to acquire the 25% of First American, which lost $182.5 million in 1990. Sources said investors, whom they would not name, have shown interest.

"They have one of the three best franchises in the market," said Arnold G. Danielson, president of Danielson Associates, a Rockville, Md.-based consulting firm.

Mr. Danielson said the most logical buyers were NCNB Corp. and C&S/Sovran, but because of merger talks were unlikely buyers. "I have real trouble coming up with anyone else," he said.

Mr. Mattingly said the Fed was informed about the BCCI seizure before it occured.

Meanwhile, BCCI could face contempt charges if it does not respond this week to a Senate Foreign Relations Committee subpoena for documents, said Sen. John Kerry, D-Mass. He is chairman of the panel's subcommittee on terrorism, narcotics, and international operations.

"They have yet to produce a single document to us under the subpoena," Mr. Kerry said.

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.