With Friends Like These, Who Needs Loan Officers?
Edwards, Lynda
With Friends Like These, Who Needs Loan Officers? With a littlegreed and a lot of log rolling, D , C. po werbro kers like Brent Scowcroft and Domas Boggs destroyed the National Bank of...
...I told them I would take the position if I were paid a salary equivalent to what I would earn at a more important bank”-$400,000 per year...
...These investors knew little about banking but a lot about doing favors for their friends-local developers like Conrad Cafritz and politicians like Gary Hart...
...In Houston, you pick men though NBW was once who drill oil, in Detroit, each were my friends,” called the “Democratic men who make cars, in party ’ s bank, ” Brent Scowcroft, then president beer...
...One bank officer remembers engaging in handtohand combat in the hall when he tried to wrench some proxy statements from a committee assistant’s hands...
...1 didn’t want to disappoint them...
...The Arab investors tried to stop the sale, because it would dilute their holdings...
...To keep up, banks began gobbling each other like candy...
...I talked them into investing, and they were expecting a big return for their million...
...Huge’s law firm served as DBA’s principal counsel...
...The lawsuit accused Said and Washington of an “unlawful, surreptitious scheme” to seize control of NBW...
...It would be unfair to let them down...
...NBW didn’t get its $10 million back...
...It would have been a respectable little bank that earned a respectable income year after year...
...status, these men shared a common goal: “They wanted to make money...
...In 1984, Brent Scowcroft also tried to bring his share of business to the bank, also with dismal results...
...The ultimate goal became the creation of huge regional banks linked to international financial centers...
...They were at the printers being redone or something...
...Bank owners, always prosperous, were suddenly becoming very, very rich indeed...
...After an investigation, the NB W examiner would make an audiovisual presentation of his findings to the directors...
...Temporarily, Hodges is ensconced in a small office in a prototypically eighties building, its peach marble interior complete with sweeping stairs, vast garden terraces, and a bubbling fountain punctuated by Cubist sculpture...
...NBW did survive plenty, from the Depression to union corruption to the Latin American debt crisis...
...Witness this 1989 exchange: Director 1: We cannot discuss your proposal with complete freedom and candor with you sitting in the room...
...When you look for a board of directors,” he explains, “you look for stature, reliability, charWashington, who would later become his nemesis, because “this is a predominantly black city and 1 strongly felt that we should have a high-powered black director...
...Director 1: Well, I think the time should be kept on a neutral watch...
...They invested in the bank expecting to double their money...
...Why don’t you go stand in the hall, too, and keep time...
...We went to the same parties...
...The mysterious Arabs have gone back to tending their more lucrative investments...
...The two became friends...
...The loan was to have been for more than $1 million, but one director came across a New York magazine profile of Coleman that made him sound like a bit of a rotter...
...The bank hired a law firm to represent the directors Washington was suing, a separate law firm for the four directors investigating Washington’s complaint, and a third law firm for Hodges...
...We thought he’d win or repay out of his federal matching funds,” Hodges says...
...No one knows how many complaints, claims, cross-claims, and motions were filed among the parties...
...And the real estate boom was sort of proof that Reaganomics was working...
...It doesn’t look good to have a lot of problem banks in your region...
...NBW loaned and lost $1 million to John Coleman, the now-bankrupt Ritz-Carlton king...
...The numbers don’t look that good on paper, but he predicts record returns...
...To tell you the truth, I would have preferred taking charge of a bigger bank,” he says...
...It’s a very good question...
...and acter, and connections...
...Hodges’s podge Today, the management of NBW is the subject of investigations by the FDIC, the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), and the FBInot to mention numerous suits and counter-suits...
...When Said bought Garfinckel’s, he took them to meet Marion Barry...
...In theory, we have lots of discretionary power, but in actuality, we’re supposed to be team players just like everyone else,” one of those examiners says now...
...Hodges believed that, with a little work, NBW could fit right into this new money order, not as predator but as prey...
...NBW was examined on an annual basis, with occasional follow-ups, by the OCC, the elite force among banking’s regulators...
...According to Hodges’s reasoning, NBW had no hope of ever running with the big boys...
...But we couldn’t sell the bank, he said...
...We played tennis together...
...he would put up any money we needed...
...As bank failures go, the $330 million that NBW’s 1990 collapse will cost the shaky taxpayer-backed FDIC insurance fund isn’t grand...
...The cattle prod Where were the bank examiners while all this money was being passed around...
...DBA began taking big government contracts-$300 to $400 million-which DBA employees thought were too cumbersome and ill-conceived for their strike-force operation...
...It may sound nutty now, but as recently as three years ago Washington was being touted as the “next New York,” a strange conceit for a one-industry town...
...Remember, these directors were selected because they were a certain type-well connected socially and politically, wealthy, well educated,” says Kathleen Collins, former general counsel for NBW...
...In the background one can discern a laughing crowd and a banner reading “Bank of the Working Man...
...In practice, the employees often deferred to authority...
...Given the grim state of the economy, even the fact that 900 NBW employees lost their jobs and pensions seems to merit barely a footnote...
...The loan oficer thought this was odd and stood up to the director: Without the statements, he said, there was no way NBW could make the loan...
...The board meetings became nightmares...
...Two of the suits are standard lender-liability suits,” Kathleen Collins explains...
...l didn’t want to disappoint them . ’’ in the world...
...Everyone was...
...But this time, when the loan officer asked Washington for his firm’s 1986 financial statements as required, Washington said the statements weren’t ready...
...developer William Cafritz...
...A few potential buyers came calling, but they claim they couldn’t get a response from the special committee, headed by Harry Huge and Thomas Boggs, that was set up to run the bank...
...Hodges set about recruiting directors who could wire him into elite Washington society-because, of course, that’s where the money is...
...The SEC complaint was so rude...
...Because the city in question was Washington, these investors weren’t the faceless Kiwanis types you’re used to seeing assailed in banking stories, but people with national influence and reputations, men like Brent Scowcroft and Thomas Boggs...
...By the early eighties, “deregulation and globalization” were the buzzwords of the banking industry...
...Director 2: I will leave the room for exactly 20 minutes...
...Small banks couldn’t compete...
...The downward slide began in 1987, when NBW wrote off $26.5 million of its $11 7 million in bad foreign loans...
...OCC ratings are not made public...
...We sued the Arab investors to teach them that you don’t behave that way...
...Hodges still clings to his-that is, George Bush’s-vision of banking’s future...
...With its price per share already slipping, the bank’s holding company made a new stock offering in an effort to raise money...
...The Arab investors and Washington “should have come and talked to the board first, kept it in the family, instead of running to the SEC...
...No one could touch us,” a former employee remembers...
...By 1988, risky international loans comprised 10 percent of NBW’s loan portfolio, and unsecured loans on “risk real estate” a whopping 38 percent...
...The move shocked the other directors, who still had faith in Hodges...
...As NBW’s early history demonstrates, getting a major loan from an American bank has always been as much a matter of who you know as how balanced your books are...
...Ordinarily, that excuse would have been enough to get the loan...
...In 1980, the bank didn’t look like much...
...There’s a certain code that governs behavior...
...On May 7, the holdmeeting minutes were about 15 pages long, but minutes from the 1988 and 1989 meetings are thick as Manhattan phone books and filled with insults and innuendo...
...Washington went straight to Hodges...
...That’s where the big money was, and that’s where we concentrated our energies...
...Hodges went after In addition to their wanted in...
...Meanwhile, overhead costs were increasing: A first-rate computer system, for instance, cost $150 million per year...
...At the bottom of the photo, five thin, elderly men in frayed suits cluster together like a poorly dressed choir...
...By 1987, I was an enthusiastic Hart person, too,” Hodges explains...
...He came up, however, with a way to allay his fears...
...We didn’t want this management to run it,” L. William Seidman, chairman of the FDIC, told Changing Times...
...There was one time, right after the SEC filing and before all hell broke loose, that I had a calm talk with Said,” Hodges recalls...
...One man is missing a leg, another has a scar running from his nose to his chin...
...The comments were always very mild and the suggestions very minor,” Collins remembers...
...Hart lost and defaulted, handing NBW 93 Rauschenberg color lithographs to auction off instead...
...A coffee-stained cardboard folder belonging to a longgone loan officer contains a little stack of directors’ memos: “Conrad Cafritz suggests the following bit of business as a good opportunity for us...
...The OCC bank examiners exerted tremendous pressure on NBW to pay out the DBA loan, and it did, although Hodges is not sure how much money, if any, the bank lost on the loan...
...There won’t be the kind of personal service people are used to today...
...Washington had dazzled Said and Idilby...
...At the beginning of 1988, DBA took out yet another multimillion dollar loan, to the concern of the OCC, which hinted in its annual bank examination that DBA had problems Hodges wasn’t aware of...
...The death blows weren’t long in coming...
...You need men who are Delano Lewis, president invested their $1 million of C&P Telephone...
...one 1987 lead babbled breathlessly...
...The firm had borrowed and paid off a multimilliondollar loan from NBW the year before...
...You don’t want to be perceived as a problem and end up driving a Buick for the Federal Reserve looking at cowtown banks in Iowa...
...Demoralized NBW employees occasionally tried to help out, with unpleasant results...
...Still, Hodges hadn’t developers...
...That statement was used in lieu of the financial reports, which were supposedly coming “any day...
...The bidder asked for them weeks before...
...Mobil, MCI, and go-go real estate-where will it all end...
...Robert Johnson, head of Black Entertainment Television...
...The men are survivors of the Battle of Blair Mountain, a two-day war in which hundreds of poorly armed miners fought the Kentucky mineowners’ private militia, which was equipped with machine guns, mortars, and even a bomber...
...In April 1989, Said and Hodges reached an out-ofcourt settlement, although Washington kept up his flurry of suits...
...That’s all it would have ever been...
...No one seemed to be in charge...
...Directors were no longer so worried about displaying “bad form...
...Bidders say that the committee spent an inordinate amount of time wrangling with Washington, who, while suing the directors, was also trying to buy the bank (backed, unfortunately, by Drexel Burnham...
...And, with the fortunes then being made in banking, who would be satisfied with that...
...But he didn’t and wouldn’t...
...That is 20 minutes by my watch...
...Here in Washing- of Kissinger Associates, became a very active dibuild or make things, it’s rector...
...He wants to write a novel based on NBW’s collapse, but the project is on hold...
...In the old days, NBW boards, besides the occasional celebrity director, were filled with retailers and restaurateurs, and it showed...
...I just got sick of seeing them sit on the asshole’s desk...
...They were all friends...
...At the center of this furor sits Luther Hodges, Jr., the bank’s former CEO, ousted at the end of 1989 after the once-clubby directors-“They were my friends,” Hodges emphasized in the course of several interviewsturned on each other like drowning cats in a burlap sack...
...In theory, junior loan officers would follow up on the rainmaking directors’ deal proposals to make sure the fine print was in order...
...Hodges drew up a timetable, with 1992 as the target date, for making NBW appealing to an international buyer...
...Research assistance was provided by Deborah Yavelak Sieff businesses, NBW was transformed into a cash cow for investors drawn from the ranks of the city elite...
...I’ve never seen anything like it...
...Look into it, see what you think...
...Although NBW had occasional low ratings in capital position and the quality of its portfolio, Hodges says management was never rated less than two until 1989, when the directors started suing each other...
...That certainly makes sense...
...And I was convinced that Washington would be an international financial center...
...After Bob Washington raised another $7 million, primarily from his partners at the law firm of Finley, Kumble, Hodges was able to buy the bank...
...Man over board Today, five of the NBW directors are shopping book deals...
...Huge was the lawyer for DBA...
...Friendship also led Hodges and the rest of his directors to come through when, in 1987, Bob Washington needed a $10 million loan for his “It doesn’t look good to have a lot of problem banks in your region,” explains one OCC examiner...
...Ilnstead of teaching them a lesson, I think the suit scared them to death,” Hodges admits...
...After quietly passing the profile around, the directors decided to go ahead and lend to the man, but to offer him no more than a million, which he hasn’t repaid...
...The friend just happened to be on the board of the dying bank...
...NBW’s old boards, which featured occasional stars like Clark Clifford and True Davis, were too detached from the bank’s business, ignoring, for example, the union’s more dubious deals done through the bank (see “Moral Ostrichism: Blindness on a Bank Board,” John Rothchild, November 1970...
...Banklogrolling “I was accused of selling directorships, but I still think directors should be major investors in their banks,” Hodges says...
...According to minutes taken at directors’ meetings, not a single director voted no on any proposed loan until 1988, when a dissident faction moved to oust Hodges...
...Furthermore, Hodges was a Democrat whose father, a North Carolina governor and selfmade millionaire, had served as John Kennedy’s commerce secretary-all of which appealed to the union, still the owner of NBW...
...Soon, stockholders were filing suits accusing Hebert of manipulating stock prices...
...as long as it was $500,000 in taxpayers’ money Charles Keating was using to build each of the rooms of the Phoenician Hotel, how could he lose...
...Just six months after Washington swore his firm was rock solid, it was bankrupt, with creditors pounding at the door...
...Hodges was originally recruited for the directorship of NBW by yet another friend, John Heimann, the comptroller of the currency, to rescue the bank from an earlier crisis...
...Said and another Saudi, Ziad ldilby, ponied up $22.5 million, receiving in return 27 percent of the stock in the holding company and two seats on the board...
...The great inflation of the late seventies sent bankinga business whose secrets to success had previously been common sense and good golf skills-into a tailspin...
...If that’s true, let’s hope the next generation of bankers sheds the traditional insider culture that Hodges’s generation tried to graft onto this embryonic banking system...
...I saw his name in the Style section a lot...
...The real world is sort of shaped around them, and reality doesn’t intrude for them the way it would for you and me...
...Perhaps NBW could have survived, despite its decaying loan portfolio, were it not for all the bad blood in its board of directors...
...But other directors also felt they owed a debt to Coleman...
...One could,” says an ex-director, “but it would be bad form...
...It was all very cozy...
...According to three directors, the unsecured loan was made primarily because of Coleman’s friendship with NBW’s major shareholder, Wafic Said...
...Hodges had a more ambitious plan: “If we cleaned it up, instituted standard loan procedures, built a good international loan department and real estate department, we could sell NBW to a big international bank, a Madrid bank, a London bank, a Japanese or Arab bank...
...Post-Donna Rice, NBW extended Hart another loan, putting the total debt at about $1 million...
...Their pretenses to the contrary notwithstanding, most bankers were taking chances in the free market the way Clark Kent risks death by flying coach...
...It was just so rude we felt we couldn’t ignore it,” Hodges says...
...Hodges had his work cut out for him...
...Collins estimates that the bank spent a least $1 million each year just to keep abreast of the suits...
...A fundamental cause of the collapse of the American banking system was the “moral hazard” posed by deposit insurance...
...cutting the banks loose from the rules that used to protect them now looked like the only way to keep them alive...
...Yes, they were already wealthy men, but having a million or so dollars isn’t that much depending on the circles you move in...
...Between 1980 and 1988,22 cover or page-one stories appeared in the local press on the subject of the “New York-Washington-Los Angeles axis...
...NBW’s unionized workforce, creaky computer system, and Palookaville real estate portfolio looked like liabilities to potential buyers...
...But things were turning ugly down in Florida...
...Wealthy customers demanded a supermarket of investment opportunities and competitive interest rates...
...The feds signed off on Hodges’s goal...
...I felt like 1 owed more to the people I represented...
...The OCC is a good place for an exyminer and it looks good on a resume when you leave...
...Bob Washington went to Howard and Harvard...
...NBW became one of the more than 500 banks in the past three years to overdose on this lethal mix of old and new banking attitudes, of country-club chumminess and free-market fever...
...A few of us rocked the boat about Latin loans and our bosses came down on us hard...
...These people who invested their $1 million each were my friends,” says Hodges...
...There will be fewer and bigger banks, gigantic international banks, more automation,” he says...
...Apparently because they were all friends...
...You don’t want to be perceived as a problem and end up driving a Buick for the Federal Reserve looking at cowtown banks in . . . Iowa...
...At NBW, the owners were always the real beneficiaries of “personal service...
...Their annual reports were printed on cheap, shiny paper and displayed photos of the shoe shops, mechanics’ garages, and mom-and-pop stores supported by NBW loans...
...But the Reaganauts injected two new elements into this insider culture: an almost messianic faith in growth and a disregard for oversight...
...It is a profound demonstration of the casual attitude with which the directors approached lending that today many of them regard the Coleman loss as a sort of success...
...General Scowcroft is an honorable man and he was very deeply involved with DBA...
...But some friendships aren’t meant to last...
...John Coleman is, after all, the man who gave this world the Jockey Club,” one ex-director says...
...But that’s like wanting the corner drugstore to last forever...
...Hodges agreed to resign in January 1990 if he couldn’t find a buyer for the bank...
...He wanted to control his own bank...
...the firm was $70 million in debt, and its California partners were accusing those in Washington of bad management...
...if you invested $1 million, you became a holding company director...
...What it didn’t survive was a takeover by Washington’s self-dealing powerbrokers...
...Loan officers earning $20,000 yearly got memos or phone calls from the millionaire directors, supposedly s a y businessmen, suggesting new opportunities...
...law firm, the infamous Finley, Kumble (see “Lawyer’s Poker,” Michael Lewis, January/February 1991...
...Surly withdrawal The NBW directors had a pretty good time for a while...
...Alpart of the fabric of local business activity...
...If the head of the company tells General Scowcroft and Huge that things are going well, they have no reason not to believe him...
...Am having lunch with CC tomorrow...
...But more money and more aggressive management could change all that...
...He said he didn’t want us to sell any more stock...
...In 1980, the bank, which had been perhaps too conservative in its lending, had assets of $859 million, and about half its loans were at fixed rates to small borrowers...
...And most of them still hate each other, which is unusual for this . . . type of men...
...Other elite members of Washington’s two worlds-local and national affairs-signed on: Thomas Boggs, a partner in the firm Patton, Boggs, and Blow and one of Washington’s best-connected lawyers...
...they assumed the Arab investors and Washington were trying to take over the bank...
...Two weeks later, on August 4, the holding company filed for bankruptcy, and at 8:45 that evening the regulators moved in and took over...
...Scowcroft owned a large amount of DBA stock (on his financial disclosure form, it’s listed only as “over $250,000...
...They invested in the bank expecting to double their money...
...No, I wouldn’t say it’s part of a director’s purview to know whether that kind of trouble is brewing...
...In October 1988, the Arab investors and Washington filed separate complaints with the SEC seeking to remove Hodges as bank chairman and CEO...
...Hodges now says he had doubts about Coleman’s financial stability-but he didn’t want to offend Said...
...Hodges appealed to the OCC and the Federal Reserve for a different reason: He shared the Reagan administration’s vision of banking’s future...
...He’d changed his mind...
...The DBA loan is one of many the SEC is now investigating...
...The miners lost...
...There have been so many financial scandals lately that publishers say they are swamped with high-roller tell-alls...
...Back in 1980, the comptroller had taken over NBW and was investigating it for dubious director-related loans, undue influence from the UMW, and charges of director kickbacks...
...Secretary’s name], do you have a watch...
...Del Col and Hawes just happened to be shareholders...
...Even though raised the $70 million he needed...
...Depositors began deserting the banks in droves, embracing innovative investments like money market funds...
...But NBW’s 1987 losses on real estate and international loans made Hodges wary...
...Conrad Cafritz now owes $1 billion to an array of creditors, including $34.6 million in unsecured bank loans, and is trying to reorganize his debt...
...Hebert and at least five directors, including Huge and Scowcroft, have since resigned from DBA...
...DBA employees had gone public with complaints that the company had overcharged the government and mismanaged several contracts and that Hebert had inflated DBA’s contract backing in reports to stockholders and the SEC...
...But, come the next campaign season, NBW was ready to put even more of its depositors’ cash on the line for Hart...
...With his Harvard degree, a resume that included the chairmanship of the North Carolina National Bank, and a stint as Jimmy Carter’s number-two man in the Commerce Department, Hodges looked like the right man to clean house...
...Of course, if Washington had access, the Arabs had money...
...Meaning the bank’s employees and depositors...
...Why did they screw up...
...Would be nice to tell him then whether or not he has a green light...
...In layperson’s terms, the California partners sued NBW because they believed no reasonable and prudent man would have lent those Washington partners money...
...Hodges and Washington began waging war on each other through the press...
...Who could object...
...In 1985, Scowcroft and Huge introduced Howard Hebert, DBA’s president, to Luther Hodges and the National Bank of Washington...
...Ordinarily, ny’s commercial paper, which had been sold to investors to keep the bank afloat...
...The first order of business was to buy out the mineworkers’ interest in NBW...
...Hebert became a director for a Virginia bank that NBW owned, and, with Huge and Scowcroft vouching for the company, DBA took out several million-dollar loans from that bank and from NBW...
...Could a director at least question a proposed loan at a board meeting...
...Then Wafic Said, about banking, they can a naturalized Saudi millionaire, approached bank through their place Hodges and said he Milwaukee, it would be ton, it’s not men who lawyers and real estate they don’t know much bring business to the says Hodges...
...Hodges approved a loan to the campaign that he will describe only as “way too big...
...Many of those loans were made to friends and associates of NBW directors...
...The first thing he did was to clear the tech-heads off the DBA board in favor of men like Scowcroft and Huge who had dazzling contacts and who shared his philosophy about making the company grow (sound familiar...
...John L. Lewis, the UMW president, had the Blair Mountain survivors shipped in for good luck, to show that the bank could survive anything...
...He introduced them to Jesse Jackson...
...Scowcroft, for example, is out at least a million bucks...
...According to Hodges, a director isn’t supposed to enmesh himself in minutiae: “A director looks at the large field and looks for opportunities...
...NBW managed to auction off 28, and the bank was stuck with a $364,000 IOU...
...While they were sitting in Washington’s office once, he got Ed Meese on the phone...
...But in 1949, their union, the United Mineworkers of America (UMW), was rich enough to buy the National Bank of Washington (NBW), the bank that rebuilt Washington after the War of 1812 and erected the Washington Monument a few years later...
...What would have happened if Hodges had decided to go along with that plan...
...After NBW reported a first-quarter loss of $5.7 million on April 10, 1990, several banks withdrew the back-up lines of credit they had provided the holding compaing company-defaulted on $25.8 million worth of commercial paper...
...On the face of it,” says Hodges, “there was no reason to doubt that it was a good loan for the bank...
...They were so impressed-he once smoked cigars in the nonsmoking section of Duke Ziebert’s,” a Washington associate says...
...The number of independent banks fell from 12,700 in 1980 to 9,800 by 1988...
...If he declares personal bankruptcy, those banks will have no claim on any of his properties or buildings...
...In fewer than 10 years, Hodges and his directors doubled NBW’s assets, at least on paper, to $1.6 billion...
...About a year after NBW extended the loan, the bank went under...
...The committee was tardy in returning calls, supplying information, responding to letters...
...He made no pretense of knowing the digitized mapping business, but he said he could make DBA earnings “explode...
...Bob Washington has opened yet another law firm...
...With a littlegreed and a lot of log rolling, D , C. po werbro kers like Brent Scowcroft and Domas Boggs destroyed the National Bank of Washington Tv er chandelier and a gilded ceiling, pale light filtering through high windows, and balconies festooned with flowers...
...When Hodges went ahead and did it anyway, they turned on him-as did Hodges’s old tennis partner, Bob Washington...
...They were my friends...
...One of Hodges’s first prize recruits was Bob Washington, a Marion Barry crony and chairman of the city’s Democratic committee...
...Things just fell apart so fast,” says Collins...
...Director 2: May I see your watch...
...Because NBW directors Peter Del Col and Douglas Hawes had a good friend in New Orleans who predicted a big turnaround lay just ahead...
...Commercial real estate and construction-the downtown office building boom, suburban hotels, luxury condos in Hillandale [in Georgetown]-and international loans,” Hodges explains...
...One of those creditors was NBW...
...On June 3, 1987, Washington and two other Finley, Kumble partners signed a statement swearing that the firm was in sound financial health...
...Your presence is an inhibitive [sic] factor...
...Their job is to rate a bank on a scale of one through five, one being excellent, in the categories of capital position, loan portfolio, earnings, management, and asset liquidity...
...Along with director Harry Huge, who originally urged Hodges to recruit Scowcroft for the board, Scowcroft served as a director for DBA Systems, a Florida-based firm that makes computerized maps and imaging systems...
...The new directors, anxious to get richer quick, were a little too active...
...Hodges’s new board, by contrast, put out its annual reports on stationer’s paper, covered with beautiful flow charts and graphics but few photos of, well, anything, just page after page of small type describing various high-return investment schemes...
...Almost 50 prominent Washingtonians signed on...
...He said the statements were coming,” Hodges recalls...
...Still, the credit extended to Cafritz seems reasonable compared to some of the loans NBW took a flier on: >In the spring of 1984, Luther Hodges’s wife, Cheray, was one of the true believers backing Gary Hart’s sputtering campaign for president...
...A 1980 OCC press release was headlined “Luther Hodges Plan[s] to Make a 21st Century Bank for the 21st Century Boom Town...
...That seems fair...
...in fact, to Hodges, it looked like a step down...
...Washington threatened 10 different directors with lists of suits and complaints...
...No, meaning the investors...
...The debts from both campaigns still stand...
...He couldn’t, and he left peacefully-with a $1.4 million, federally approved parachute to cushion his fall...
...Theodore Pedas, the president “These people who of Circle Theaters...
...To make matters worse, a few months later, the firm’s California partners sued NBW over the loan...
...In 1988, NBW extended an unsecured $6 million loan to a failing Louisiana bank...
...The directors of NBW, however, had a great deal riding on their bank’s success...
...DBA used to be a small, can-do firm, a magnet for whiz kids fresh out of graduate school...
...Conrad Cafritz, by the way, is the brother of William Cafhtz, who you will recall was a member of NBW’s board...
...OCC flyboys make $80,000 to $100,000 per year...
...With all the work in the world, it could never be anything more than a small, efficiently run local bank...
...They never said ‘suspend dividends’ or ‘sell that operation.’ ” But, like the junior loan officers, the OCC investigators didn’t feel it was their place to criticize...
...But when Hebert, an investment consultant, took over in 1979, things changed...
...But the story behind the NBW failure is important, because it encapsulates all that went wrong with so many banks and S&Ls during the Reagan years: From serving as a reliable, if troubled, lender to small city Lynda Edwards is a Washington writer...
...Then, in July, after a three-month investigation by the feds, NBW announced an astounding $80 million second-quarter loss...
...Like several other banks, NBW often granted Cafritz unsecured loans based on nothing more than his personal guarantee-and then lent him more money to cover his interest payments...
...In 1989, lawsuits cost DBA $1.1 million of its $1.3 million income...
...Remarkably, the directors still blew it...
...So Hodges formed a holding company and began hunting for investors, with an interesting pitch: If you put up a quarter of a million dollars, you got to be on NBW’s board of directors...
...There was a limit to what the National Bank of Washington could accomplish alone...
...And they fought back with everything they had...
...The statement was untrue...
...When someone comes from a prominent, respected family, like the Cafritz family, it seems logical to assume that he will pay his debts eventually,” Hodges says...
Vol. 23 • May 1991 • No. 5
