One of the hardest things to understand about the supernova rise and subsequent crash of Bruce McNall, the West Coast entrepreneur famous for bringing hockey star Wayne Gretzky to Los Angeles, is how a half a dozen financial institutions were seduced by his salesmanship.
Discussions with bankers and their lawyers make it clear that Mr. McNall's career as a coin dealer, race horse trader, movie producer, and sports club owner was never really questioned until the wobbly structure upon which he'd built his empire was about to collapse.
Sources at BankAmerica Corp., one of Mr. McNall's biggest backers, said it wasn't until last spring when the L.A. Kings couldn't meet payroll, that the bank pulled out all stops to make sure his hockey team was sold to new owners.
Perhaps this debacle should be chalked up as simply another 1980s-style example of greed and laxity; a tale that begins with a sweet-talking smoothie and ends with a group of bankers lending him money against inadequate collateral in order to book fee income. But with Mr. McNall scheduled to plead guilty next week to bank fraud charges involving $236 million, and his commitment to help the U.S. Attorney's office and the FBI in an ongoing investigation, it may turn out that some bankers are also culpable, of bad judgment, if nothing else.
BankAmerica's involvement with Bruce McNall began in June 1990, when it actively solicited his business and wound up making a $60 million loan to McNall Sports & Entertainment Inc. The loan came out of BofA's San Diego office and was collateralized against all the assets of the Kings: the franchise, the players, the contracts, and the stadium lease.
Shortly afterward, the bank made another $20 million loan, also out of the San Diego office, this time to Mr. McNall and his wife. The collateral included Mr. McNall's controlling interest in the Toronto Argonauts football team, a 51% interest in a McNall company called Superior Stamp and Coin Corp. and stock in another McNall entity, Numismatics Fine Arts.
Pete Skelton, an executive vice president with the California bank's special assets group, says it made sense for BofA to try to get a piece of McNall's action. "At that point, he was highly respected in the community. He bought the Kings and turned them around. He had brought in Wayne Gretzky. He had an excellent reputation around Los Angeles. There was no indication that he had any financial problems. And we had the financial statements."
Loans from other banks, including Credit Lyonnais Bank Nederland N.V., which had been made before June 1990, were never disclosed, Mr. Skelton points out.
But by October 1991, BofA executives had an inkling Mr. McNall was in trouble, because he was in asking for a deferment on a $500,000 interest payment. The bank gave it to him.
In early Spring 1992, Mr. McNall was back again, this time asking for another $20 million loan. Although the request probably should have raised eyebrows, Bank of America not only gave Mr. McNall the loan, it also did not seek any collateral to cover it.
In a recent interview, Mr. Skelton said the bank believed the collateral it already had could cover an additional $20 million. However, he does admit "that it doesn't sound good. Not if you're looking at it today."
By June 1992, Mr. McNall asked for another loan. This time, the bank balked. It refused to put out any more money and by that October had moved the entire account into "special assets," a workout group.
In the months that followed, Bank of America heaped pressure on Mr. McNall to sell his beloved Kings in order to pay back the loans. But by early 1993, Mr. McNall's skills as a salesman were starting to sputter. He spent the better part of last year trying to talk Sony Entertainment into buying the team, and failed.
A deal was finally struck in May 1994, but only because Bank of America stepped in and put up $50 million for Jeffrey Sudikoff and Joseph Cohen of IDB Communications to buy 72% of the team. The new Kings owners contributed $10 million of their own money plus a $5 million letter of credit to seal the deal.
The collateral for the new BofA loan, was, once again, the King's assets.
For all of his troubles, Mr. McNall managed to retain 28% of the team and an option to buy back 52% within seven years. But BankAmerica Corp. spokes-woman Shirley Norton says Mr. McNall's remaining interest in the Kings has been turned over to a bankruptcy trustee.
The net return for BofA includes a $5 million note payable by the Walt Disney Co., which a McNall company turned over to the bank; a 10% interest in a Sudikoff-Cohen entity which will try to build a new arena in Los Angeles; and 60 cents on the dollar to cancel the McNall loans.
But the bank still has $45 million at risk with the new owners of the Kings.
Credit Lyonnais' ill-fated relationship with Bruce McNall dates back 10 years, to his movie mogul phase. The earliest loans were made to his Gladden Entertainment Corp., a movie production company; U.S. Coin Enterprises Corp., one of his rare coin dealing businesses, and Summa Stable Inc., a company that breeds and races horses. Loans made in all three cases were largely secured by inventory and goods associated with each of the companies. Mr. McNall also gave his personal guarantee.
According to a petition to the California court handling the McNall bankruptcy, Credit Lyonnais said it lent the 44-year-old entrepreneur a total of $85 million on the basis of a fraudulently represented financial condition.
The bank accused Mr. McNall of a litany of sins, including:
* Failing to deliver winnings and insurance money generated by his race horses that were promised to the bank;
* Moving all of his valuable assets into a newly-created company and out of the entity used to borrow money from Credit Lyonnais;
* Pledging as security race horses he did not own and inflating the value of those he did own by millions of dollars;
* Giving himself illegal dividends and then investing them in a "highly speculative" venture without permission from the bank. (The money was used to salvage coins from a sunken ship, the S.S. Central America, after Credit Lyonnais refused to finance the endeavor with a new loan.)
Mr. McNall offered the S.S. Central America's marketing contract as collateral to both Credit Lyonnais and Bank of America, Credit Lyonnais says. And the did the same with stock in a company owned by U.S. Coin. (Bank of America took the stock but refused the marketing contract, although it is unclear how much value, if any, is in either.)
The French bank also gave Summa Stable a $9.8 million revolving credit agreement. As security against the agreement, Mr. McNall glibly promised sales and insurance money from the stable's 26 horses, 12 of which were said to be worth $3 million. When the horses were sold, they recouped a mere $220,000. Even then, Credit Lyonnais didn't get any of the money because it was "eaten up [literally] in boarding costs," according to the bank's lawyers.
The McNall-owned movie companies borrowed a total of $60 million from Credit Lyonnais and owe another $36 million in accrued interest. The collateral in this case were several films produced by Gladden, including "War Games" and "Gleaming the Cube."
Fred Spar, a Credit Lyonnais spokesman who works for the public relations firm Kekst & Co., says it's ridiculous to blame the banks for what happened. "Credit Lyonnais was one of a large group of people who were taken in by this guy. Merrill Lynch, IBJ Schroeder, European American Bank, Bank of America all did business with Bruce McNall. These are parties with blue chip reputations. Questioning the victims becomes frivolous. A rape was committed and now it's suggested that the victim's skirt was too short.
"Bruce McNall's standing in the Los Angeles community a few years ago was very high. He was the 'Golden Boy.'"
The overweight, baby-faced entrepreneur, who once lavished time and clever quotes on a rapt local press corps, is no longer giving interviews. His lawyer, Tom Pollack, handles all inquiries and says only that he and Mr. McNall are hoping for leniency from the judge when a sentence is handed down, probably next summer. Mr. McNall faces up to nine years in prison if convicted on wire fraud, bank fraud, and conspiracy charges.
European American Bank, which started lending money to Mr. McNall back in the early 1980s, is still owed $28 million of a total $45 million. Some of that money was spent on race horse deals; some on movie deals. According to a creditor source, the bank lent Mr. McNall the $15 million used in 1988 to persuade Wayne Gretzky to play hockey for the L.A. Kings.
This source says that after Mr. McNall was forced into bankruptcy earlier this year, the prospects of EAB even seeing eight or nine cents on the dollar is remote.
"McNall seemed to be able to continually get people to give him money when in fact he was having significant problems," the source says. "If you catch him telling a lie he'll 'aw shucks' it and go on to the next thing.
"He is, in my experience, the best salesman I've ever seen."
Some of Bruce's Banks Amount lentBank in millions CollateralBank of $100 *All assets of the L.A. KingsAmerica hockey team *A controlling interest in the Toronto Argonauts football team *A 51% interest in Superior Stamp and Coin Corp. *Stock in Numismatics Fine Arts.Credit $85 *Films produced by GladdenLyonnais Entertainment Corp. and affiliatedBank companiesNederland *U.S. Coin Enterprises Corp. stockN.V. *Inventory and horses owned by Summa Stable Inc.European American $45 Personal guaranteeBankIBJ Schroeder $41 Personal guaranteeBank & TrustRepublic Bank $2 Personal guaranteeTorrance, Calif.Chase Manhattan NA NAUnion Bank NA NABank of California NA NA
Sources: individual banks, U.S. bankruptcy court filings