2 Top Italian Bank Officers Step Down : Unauthorized Lending to Iraq by U.S. Office in Atlanta Cited

The two top officers of Italy’s largest commercial bank, Banca Nazionale del Lavoro, resigned Thursday in a scandal over massive unauthorized lending to Iraq by one of its U.S. branches.

A bank spokesman announced the resignation of the bank’s president, Nerio Nesi, and director general, Giacomo Pedde, after a five-hour emergency board meeting here.

BNL revealed last month that its office in Atlanta had extended about 2,500 letters of credit covering exports by U.S. and European firms to Iraq.

In a statement on Thursday, the bank said it had extended $1.72 billion of financing for exports to Iraq and had unexecuted commitments for a further $920 million.

Of the credits already issued, $1.02 billion covered contracts on behalf of Iraqi government bodies that were guaranteed by the Iraqi central bank.

A further $700 million of credits were guaranteed by the U.S. Commodity Credit Corp., an arm of the Agriculture Department.

BNL is under investigation by the U.S. Federal Reserve and the Bank of Italy over the letters of credit, which were mainly to finance exports of industrial machinery and grain to Iraq. The bank says the letters did not involve arms shipments.

Planning Expansion Program

While investigators have not said the credits were illegal, BNL has admitted its own regional management in New York knew nothing of the transactions, sparking criticism by the press and politicians in Italy over the way the bank was run.

BNL, in which the Treasury has a 74% stake, was criticized for bureaucratic and inefficient management in a 1986 Bank of Italy report.

The latest crisis broke as BNL was planning an expansion program involving an alliance with state insurance group INA designed to improve its position in the increasingly competitive European financial services market.

BNL announced Wednesday that it had fired its Atlanta branch manager, Christopher Drogoul, and that it was taking legal action against him in Italy.

In a statement on Thursday, the board said it was confident the bank’s assets were solid.

“BNL, like other big international banks, has overcome difficult situations in its past through its own strength and through the dedication of its staff, and the conditions also exist on this occasion for it to do so,” the statement said.

The BNL spokesman said Nesi and Pedde would formally tender their resignations to Treasury Minister Guido Carli today.

The departure of Nesi, 64, marks the end of an era for the bank. He has been president of BNL since 1978 and has played a prominent role in Socialist party politics, recently as a critic of party leader and former Prime Minister Bettino Craxi.

Nesi was financial services director for Olivetti between 1958 and 1970 and then worked for several Italian banks.