Baker to Sell All Shares of Publicly Held Stocks : Reacts to Criticism About Propriety of Ownership in Bank With $4.5 Billion in Third World Loans

Secretary of State James A. Baker III, reacting to questions about the propriety of his owning shares in a bank with major Third World debts, announced Tuesday that he will sell all his holdings of publicly held stocks.

Baker’s sudden move came after new criticism of his ownership of a substantial amount of stock in Chemical New York Corp., a bank holding company with some $4.5 billion in loans to Third World nations.

“I have decided to direct the trustee of my blind trust to dispose of not only all of the Chemical Bank stock in the trust, but all of the other publicly traded stocks as well,” Baker said in a written statement distributed to reporters traveling with him on his current trip across Europe.

Wife, Daughter Also to Sell

He said that his wife, Susan Baker, and their daughter, Mary Bonner Baker, also will sell their publicly traded stock.

“While I believe this decision goes well beyond what is required or what has been recommended, I think it is the correct decision for someone committed to meeting the highest ethical standards,” Baker’s statement said.

Baker announced his decision--which could cost him hundreds of thousands of dollars in capital gains taxes--almost a week after the disclosure that owning the bank stocks appeared to put him in conflict with new, more stringent interpretations of government ethics rules.

As secretary of state, Baker is intimately involved in making U.S. policy on the Third World debt crisis--an issue that directly affects Chemical and other major banks.

Insists Nothing Is Wrong

A Baker aide insisted, however, that the secretary of state still believes that there is nothing wrong with his ownership of the bank stock--either in his present job or as secretary of the Treasury from 1985 through 1988.

“Absolutely, positively not,” the aide said.

The situation was embarrassing to Baker, however, especially because President Bush has made a point of saying that his Administration will meet higher ethical standards than did the Ronald Reagan Administration.

The aide said that Baker “basically” had decided to sell the stocks Saturday and made his final decision Tuesday after receiving a list of options from State Department lawyers.

The swift decision was said by aides to be characteristic of Baker, who has long been known for reversing his field adroitly from politically losing positions.

As recently as last Friday, Baker had said that he wanted the White House counsel C. Boyden Gray to waive the conflict-of-interest requirement in the case of his bank stocks, although aides said that the secretary of state had never asked for the waiver.

The basic requirement of government ethics rules is that officials not participate in decisions that could affect stocks they own. Before 1987, the rule was held to apply to situations where a policy decision would directly affect a specific company’s operations. But in 1987, the Justice Department issued a new interpretation which held that officials should not make even general policy decisions that could have a “predictable effect” on a company whose shares they own.

In the case of a secretary of state or of the Treasury, many--if not most--decisions on foreign debt issues could directly affect the fortunes of the major U.S. banks.

Baker has owned large blocks of bank and oil stocks since well before he came to Washington as then-President Ronald Reagan’s chief of staff in 1981. His stock in Chemical New York derives from the banking company’s acquisition in 1987 of Texas Commerce Bankshares, which in turn grew from a bank founded by Baker’s grandfather.

Reports Holdings in Filings

Baker reported his holdings when he was nominated as secretary of the Treasury in 1985, in annual filings after that, and again when he was nominated as secretary of state last month.

At the same time, he filed formal “letters of recusal” stating that he would abstain from policy decisions which specifically affected his holdings.

Baker does not know exactly what is contained in his blind trust, which he set up to hold his investments when he became White House chief of staff. But his overall stock holdings have been estimated in the millions.

Baker’s latest financial disclosure form, filed with the Office of Government Ethics last month, puts a value of more than $250,000 on the assets held in the secretary’s qualified blind trust and shows that the secretary received “over $100,000” in income from the trust between January and August last year.

The disclosure form also lists the separate holdings of Mrs. Baker, including 1,087 shares in Houston Industries, valued between $15,001 and $50,000. The form listed assets of his daughter, Mary, as including 5,310 shares of Chemical New York Corp., 196 shares of Exxon Corp. with a value listed at $5,001 to $15,000; 144 share of Houston Industries with a value listed at $1,001 to $5,000; and 330 shares in Trinity Petroleum Trust, with a value listed at $5,001 to $15,000.