NEW YORK -- The link between the 45 branches of First American Bank of Maryland and the notorious Bank of Credit and Commerce International is through a string of at least six intermediary holding companies with, according to federal regulators, an illegal tie up top.
Using the string metaphor, at one end is First American of Maryland, as well as other banks in New York, Tennessee, Georgia, Florida and Virginia. At the other is BCCI. In Maryland's case, the documented progression is as follows:
First American Bank of Maryland is owned by Maryland Bankshares, Inc. of Baltimore, which in turn is owned by First American Metro Corp. of McLean, Va., which is owned by First American Bankshares Inc. of Washington, which is owned by First American Corp., also of Washington, which is owned by Credit and Commerce American Investment B.V. of the Netherlands, which is owned by Credit and Commerce American Holdings N.V. of the Netherland Antilles.
Banking regulators say nothing about these interlocking companies is improper. The impropriety occurs at the next level of control, whereby BCCI is alleged to surreptitiously control Credit and Commerce American Holdings, and thus the rest of the string.
The odd relationship began in 1982, according to the Federal Reserve Board's recent action against the bank. At the time, BCCI funded the acquisition of First American by secretly pumping money through another company, Credit and Commerce American Holdings. That money effectively gave BCCI control initially of 25 percent of Credit and Commerce American Holdings, and BCCI built the stake to 60 percent.
The ownership stake between BCCI and Credit and Commerce American Holdings was never explicit.
Instead, BCCI provided what it claimed were loans to other investors, who used the money to buy shares in Credit and Commerce American Holdings N.V. These investors neither repaid the loans nor paid interest and were actually acting merely as surrogates for BCCI, the Fed said.
The reason for this complex arrangement, the Fed contends, dates back to BCCI's failed attempt in the late 1970s to acquire the predecessor company to First American, a Washington-based holding company named Financial General Bankshares Inc.
The Fed contends BCCI was told that because of its bad reputation, regulatory approval for a U.S. bank acquisition was impossible. And regulators weren't the only ones registering concern. A board member of Financial General said that BCCI's initial overtures were badly received, with considerable attention focused on its notoriety. Managers of both Financial General and American Bank of Maryland (which at the time did not have complete overlap in ownership) told state regulators they objected to the acquisition.
BCCI's response, according to the recent Fed action, was to create another company, Credit and Commerce American Holdings. In January 1979, the Maryland component of the acquisition was still denied by the state attorney general, despite arguments by, among others, former U.S. Defense Secretary Clark Clif
ford, who currently heads First American Bankshares.
But in 1980, a new petition for acquisition was made, and a deal was struck.
In June 1981, approval was granted for the purchases of Financial General and a large chunk of First American Bank of Maryland.
A remaining 27 percent stake still in the hands of local investors was purchased in 1988 in a forced buyout.
Despite the furor surrounding BCCI, state regulators say they are comfortable with the current structure.
Because BCCI has no explicit stake in either the bank or the related holding company, it does not have authority to withdraw money from the bank or undermine First American's solvency, said Anthony Zelaznicki, administrator for the Office of the State Bank Commissioner.
Indeed the opposite has occurred.When operating losses last year depleted reserves in the Maryland bank, funds were provided.
"As long as investors keep putting in money when we say they need capital, we are not concerned, and we aren't concerned because they always put it in," Mr. Zelaznicki said.