A most interesting credit, encountered during the examination of the international department of a major bank, that was in the process of charge off, made the pages of the American press in the 1960s.

The bank I was examining had only a minor participation of $5 million in a multimillion credit shared by numerous banks coast-to-coast to finance the importation of vegetable oil from Europe.

The senior vice president and manager of the department said that, when the loan was made, it was so well-structured that it appeared "gold-gilded."

However, the importer was readily selling vegetable oil at a price lower than cost, and replacing it, in the tanks, with water covered by a layer of vegetable oil. It was a massive fraud.

Apparently, the lead banks' analysts did not analyze the credit, nor did the auditors perform audits in-depth, (no pun intended) which might have uncovered the fraud early on.

The most amazing fact about this credit came up when talking to an officer of another department of the bank.

The officer recounted how, while playing golf with a man, he asked what business the man was in. "Vegetable oil," was the answer.

The banker pressed on, and the golfer replied that, when he saw the importer selling at less than cost, he thought that something was wrong. It did not make sense, and he did not want to do business with the importer.

Top bankers, analysts and auditors all had lost sight of the proverbial forest for the tree. As simple as all that!

The credit might have been "gold-gilded," but it did not make sense, the first test that a credit must pass.

Over his 50-year career in banking, Ugo Nardi worked his way up from a teller to an auditor, lending officer, state bank examiner, and a bank president. He retired in 2000.