FDIC to Sell Stock Taken in Bailout of Illinois Bank

The Federal Deposit Insurance Corp. said Thursday that it will sell 50 million of the shares that it acquired from Continental Illinois National Bank & Trust Co. in an unprecedented $4.5-billion bailout two years ago.

William Seidman, chairman of the agency that insures the nation’s banks, told reporters that the sale, while relatively modest, will “reduce our current ownership in the company by approximately 30%.”

He added that the FDIC expects to lose about $1 billion from its rescue of the Chicago bank, which is a unit of Continental Illinois Corp.

Seidman said the agency, which also holds Continental preferred stock and $3.5 billion worth of its problem loans, is attempting to balance two possibly competing goals--a quick return of Continental to private hands and maximum recovery of insurance fund outlays.

In the largest bank rescue ever, the FDIC bailed out Continental in 1984 after it suffered a huge run on deposits triggered by rumors that it was on the verge of failure. Underlying the bank’s problems was $2.3 billion in problem loans.

In response to criticism of the rescue, Seidman said big money-center banks are too large and their impact too great for them to be allowed to fail.