Fed Is Expected to Facilitate Sale of Bank in Encino
The Federal Reserve Board may move soon to name a trustee to find a buyer for an Encino bank allegedly controlled in secret by the scandal-plagued Bank of Credit and Commerce International, banking sources said Tuesday.
The Fed on May 7 ordered BCCI to sell its alleged interest in Independence Bank, the San Fernando Valley’s largest bank. The Fed gave BCCI 60 days to come up with a plan to sell its purported interest.
The plan was filed on Friday’s deadline but may be complicated by a broader worldwide scandal involving BCCI. The bank, based principally in Luxembourg and the Cayman Islands, was seized last Friday by regulators from around the world amid allegations of massive fraud by the bank in hiding losses, which some officials estimate at more than $4 billion. BCCI previously was convicted of laundering drug money for jailed Panamanian ruler Manuel Noriega.
The naming of a trustee for the voting shares of Independence would allow the Fed to firmly control the sale of BCCI’s interest in the Encino bank, which otherwise might be delayed as a result of the seizure of the bank’s worldwide operations by other banking authorities. The shares are said to be in Luxembourg now.
In addition, a trustee would effectively control Independence Bank, which has assets of $659 million, until a buyer is found and could exercise broad authority such as the removal of directors.
Naming a trustee for the shares allegedly owned by BCCI does not constitute seizing the bank. The Fed does not directly regulate Independence Bank, which is monitored instead by state banking regulators.
Federal banking law requires bank holding companies such as BCCI to gain Fed approval before acquiring 25% or more of a bank. BCCI gained no approval and had no authority to control the bank, federal regulators said.
Independence Bank’s owner of record is Saudi financier Ghaith R. Pharaon, who could not be reached for comment. But authorities believe BCCI used Pharaon as a front man in gaining control of Independence through a series of loans. Pharaon has consistently maintained that he owns 100% of the bank and is not a front man for BCCI.
According to banking sources, Independence Bank’s current managers requested in the plan submitted last week that the trustee for the shares be appointed to oversee the divestiture, in part because it would reassure customers and depositors of its 14 branches.
They also requested BCCI be ordered to pump capital into the bank, but prospects for that happening are growing more uncertain in the wake of BCCI’s seizure by bank authorities and the discovery of huge losses. Independence lost $16.9 million in the first quarter ended March 31--its largest quarterly loss ever--due to greater reserves for loan losses and bad real estate investments.
The Fed has ordered BCCI to sell its stake in another bank, First American Bankshares in Washington. Two First American officials under scrutiny in that case include prominent Washington lawyer Clark M. Clifford and his law partner, Robert K. Altman.
Elsewhere, talks in Great Britain continued Tuesday over the fate of BCCI. The Bank of England was in discussions with representatives of the Abu Dhabi government, which, along with ruler Sheik Zayed ibn Sultan al Nuhayan, own 77% of BCCI. One report said that $486 million might be injected by Abu Dhabi to cover depositors’ demands.
Also, Sen. John Kerry (D-Mass.) threatened BCCI with a contempt citation for failing to respond by Wednesday to a Senate subpoena.
