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    "localId": "4511185",
    "label": "United States National Bank, San Diego",
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    "id": "4511185",
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    "contentType": "document",
    "title": "United States National Bank, San Diego",
    "citationUrl": "https://catalog.archives.gov/id/4511185",
    "collections": [
        "Arthur F. Burns Papers",
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        "Banks and banking"
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        "logicalDate": "1973-11-30",
        "month": 11,
        "year": 1973
    },
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        "logicalDate": "1973-06-01",
        "month": 6,
        "year": 1973
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    "type": "document",
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    "ocrText": "The original documents are located in Box B114, folder \"United States National Bank, San\nDiego\" of the Arthur F. Burns Papers at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. The Council donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nNATIONAL ARCHIVES AND RECORDS SERVICE\nWITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)\nFORM OF\nCORRESPONDENTS OR TITLE\nDATE\nRESTRICTION\nDOCUMENT\n1. memo\nBrenton C. Leavitt to the Board of Governors re United\n6/19/73\nC\nStates National Bank, San Diego\n2. memo\nBrenton C. Leavitt to the Board of Governors re pro-\n10/16/73\nC\nposed acquistion of United States National Bank,\nSan Diego\nopen DAH slor\nFILE LOCATION\nArthur Burns Papers\nSR\nFederal Reserve Board Subject File, Box B114\n10/29/84\nUnited States National Ban, San Diego\nRESTRICTION CODES\n(A) Closed by Executive Order 12065 governing access to national security information.\n(B) Closed by statute or by the agency which originated the document.\n(C) Closed in accordance with restrictions contained in the donor's deed of gift.\nGENERAL SERVICES ADMINISTRATION\nGSA FORM 7122 (REV. 1-81)\nDigitized from Box B114 of Arthur F. Burns Papers at the Gerald R. Ford Presidential Library\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 6, 1973\nBoard of Governors\nTo\nSubject: United States National Bank,\nFrom\nSan Diego, California\nB.6.K. Brenton C. Leavitt\nVERY CONFIDENTIAL F.R.\nOn June 5, 1973, the problems of this bank were discussed with\nGovernor Bucher and Mr. O'Connell. During the day Mr. O'Connell and I\nspoke with four representatives of the Federal Reserve Bank - Senior Vice\nPresident Kelly, Vice President Jamison, Vice President Reilly, and\nAssociate General Counsel Cooper. Mr. Jamison is in charge of examinations\nand discount while Mr. Reilly is general counsel. Later in the day\nMr. O'Connell and I spoke with First Deputy Comptroller Watson.\nThe purpose of the call to the San Francisco group was to impress\non them the need to keep a careful detailed and precise record if the\nFederal Reserve Bank extended credit to United States National. We\nparticularly stressed the need for perfecting liens on collateral and\ndiscussed the possibility of obtaining an affidavit from the bank that\nthe collateral posted to secure loans was free, clear, and available for\npledging.\nThe Reserve Bank discussed the type of collateral available.\nAs mentioned in my memorandum of June 4 there is available in the Treasury\nTax and Loan Account $10 million of excess collateral which is in the form\nof U.S. Government bonds. It was mentioned that we could not require the\nbank to leave these securities with us as possible collateral should they\nwish to withdraw them. But in the event they asked to have the collateral\n-2-\nreturn d, the Federal Reserve Bank will point out that they might have\nto borrow and that this would be very acceptable collateral. They will\n.be urged to leave the securities with us as possible collateral.\nThe loans available for collateral were discussed, and the\nReserve Bank said that if necessary, as many as 25 examiners could be\ndetailed to consider collateral. It was agreed that loans to C. Arnholt\nSmith and his interests would be accepted as collateral only after other\ncollateral is exhausted.\nWhen question was raised about a visit to the bank by Federal\nReserve examiners, Mr. O'Connell and I instructed the Reserve Bank\npersonnel that they were not to go into the bank without receiving prior\nauthorization from the Board. It is most unlikely that there would be\nany justification for our examining any aspects of the bank's operations.\nAfter that discussion Mr. O'Connell and I talked with First\nDeputy Comptroller Watson who is going to provide for us a copy of the\ncease and desist order issued against the bank and the debenture agree-\nments representing the $15 million of subordinated debt carried in the\nbank's structure. Most, if not all of the debentures, are owned by\nFranklin National Bank of New York. Mr. 0' Connell and I told Mr. Watson.\nwe were doing some preliminary planning in the event the System has to\nadvance money to the bank. We indicated to Mr. Watson our desire to have\na complete record and mentioned some problems both our agencies had had\nat the time of the San Francisco National Bank failure. Mr. O'Connell\nasked Mr. Watson if he would call Mr. Larson, Regional Administrator in\n-3-\nSan Francisco, and request Mr. Larson to provide any information that\nmight be necessary for us to have in connection with our discount\nfunction. Mr. Watson said he would do that.\nMr. Watson mentioned that the last time they had reviewed the\nliquidity of this bank it had about $120 million of liquid assets over\nreserve requirements. He also said that there is the possibility of a\nmerger if the situation gets extremely serious. The merger partner might\nbe Crocker National Bank and it is estimated that the price of United\nStates National should be about $100 million. It was mentioned that if\nnecessary the purchase price could be escrowed and Crocker given a\nreasonable time in which to work out bad loans and charge them to the\nescrow account.\nIt was agreed by all concerned that we will keep each other\ninformed of any material fact.\nDistribution: Messrs. Holland\nMelnicoff\nSolomon\nO'Connell\nSmith\nPartee\nRing\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 12, 1973\nTo\nBoard of Governors\nSubject:\nUnited States National Bank,\nFrom\nBrenton C. Leavitt\nB.G.L.\nSan Diego, California\nVERY CONFIDENTIAL (F.R.)\nOn June 11, 1973, Vice President Jamison called twice to report\ndevelopments about this bank. In the first call he said that everything\nappeared normal in that there was no deposit run-off and the reserve\naccount excess is now at $51 million. It is likely the bank had run down\nthe reserve account on the last day of the accounting period in order to\nsell the excess in the Federal Funds market.\nLate that afternoon Mr. Jamison again called to state that the\nbank had asked that $10 million of excess collateral in the Treasury Tax\nand Loan Account previously referred to is to be transferred to collateral\nto secure borrowings from the Federal Reserve Bank. United States National\ninformed the Los Angeles office that it expects to borrow $10 million on\nJune 12.\nI told Mr. Jamison he should contact Regional Administrator Larsen\nto inform him of this borrowing and also to ask Mr. Larsen if the bank was\nsolvent.\nMr. Jamison said that a meeting with bank representatives was\nscheduled for later this week. I asked him if the meeting could be\nscheduled earlier this week, and he thinks it can be scheduled for June 13.\nBoard of Governors\n-2-\nJune 12, 1973\nAt the meeting the bank's representatives will be asked what they expect\nto happen and what is the worse they think can happen. They will also\nbe asked how they propose to deal with the problem.\nOn the morning of June 12 I called First Deputy Comptroller\nWatson to inform him of developments. At that time he .told me that\nrepresentatives from the Comptroller's department had entered the bank\nas of the close of business May 31, 1973, to check the schedule of\nmaturing CD's. We will be given a copy.\nMr. Watson also confirmed Mr. Jamison's comment that Bank of\nAmerica has discontinued selling Federal Funds to United States National\nand that Crocker National proposes to do likewise. President Peacock of\nCrocker recently discussed with Mr. Watson the possibility of merger.\nhowever, Mr. Peacock does not know how serious the problem is. Once he\ndoes know he may lose interest.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nSmith\nPartee\nRing\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 18, 1973\nBoard of Governors\nTo\nSubject:\nUnited States National Bank,\nFrom\nBrenton C. Leavitt\nSan Diego, California.\nVERY CONFIDENTIAL (F.R.)\nOn June 15, Governor Bucher, Mr. O'Connell and I talked with\nFirst Vice President John Williams and Vice Presidents Jamison and Reilly\nof the Federal Reserve Bank of San Francisco. They mentioned that the\nexecutive committee of the Federal Reserve Bank's board of directors had\nindicated concern about requiring Regional Administrator Larsen to certify\nby letter that the bank is solvent. They wondered if a letter was\nnecessary and asked why we could not rely on his oral statement. It was\nstated that if Mr. Larsen is willing to state orally the bank is solvent,\nhe should not object to confirming this view in writing. Mr. Williams\nstated that the directors of the Federal Reserve Bank want the System\nto loan money to United States National citing as reasons the importance\nof the bank in local economy and the impact its failure would have on the\nSan Diego and even the California economy.\nWe were informed that representatives of Crocker National Bank\nare meeting with representatives of United States National on June 15.\nIt is understood that United States National wants assurance from Crocker\nthat money, presumably through the medium of Federal Funds, will be made\navailable. The leason for the meeting is to consider the possibility of\nCrocker merging with United States National. Crocker is known to have\nbeen interested for sometime and from a competitive view might be favored\nas it is not so heavily represented in the San Diego area as are other large\nbanks which might be merger possibilities.\n-2-\nDespite our understanding that the bank would not submit as\npossible collateral loans of any interests of Mr. Smith an undetermined\namount represent such obligors. This is not regarded as acceptable\ncollateral since it is impossible to appraise it. Mr. Williams noted\nthat the bank has a large volume of installment loans, and it was agreed\nthat where such loans were reasonably made and are \"aged\" it would\nprobably be reasonable to loan 90 per cent of face. The Reserve Bank\nplans to appraise this collateral over the weekend. Interestingly,\nC. Arnholt Smith was with the bank's representative when the loan\ncollateral was delivered to the Los Angeles branch on June 14.\nWe emphasized the Board's strong feeling that prior to lending\nthere should be a written statement from the Comptroller's representative\nregarding solvency and the loans pledged as collateral should have been\nreviewed. The suggestion that the installment loans be verified, on a\nsample basis, was accepted. It was stated categorically by Reserve Bank\nstaff that no advance to the bank would be made without prior checking\nor notification to the Board.\nThe Federal Reserve Bank has retained as outside counsel\nJudge Elderkin of the Brobeck firm which earlier represented the Reserve\nBank. General Counsel O'Connell is in San Francisco today (June 18) to\ndiscuss various legal aspects which can be anticipated in this situation.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nSmith\nRyan\nGERALD R. FORD LIBRARY\nThis form marks the file location of item number\nas listed on the pink form (GSA Form 7122, Withdrawal Sheet)\nat the front of the folder.\nOF\nCONSTMENT THE THE TREASURY\nTHE ADMINISTRATOR OF NATIONAL BANKS\nWASHINGTON, D.C. 20220\n1789\nOffice of the\nComptroller of the Currency\nJune 19, 1973\nBoard of Governors of the\nFederal Reserve System\nWashington, D. C. 20551\nAttention: Governor Jeffrey M. Bucher\nGentlemen:\nIn reply to your request for a statement concerning\nthe condition of the United States National Bank of San\nDiego, California, as of the close of the last full\nexamination of the subject bank which terminated on\nMarch 22, 1973, the bank was found to have potentially\nsevere credit problems but was adjudged to be solvent.\nTo date, we have not received any information which would\nmaterially alter this conclusion. If there is any significant\nchange in the condition of the bank, this Office will promptly\nadvise you.\nSincerely,\nJ. Watson J. T. Watson\nActing Comptroller of the Currency\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 25, 1973\nTo\nBoard of Governors\nB.G.L.\nSubject: United States National Bank,\nFrom\nBrenton C. Leavitt\nSan Diego, California.\nVery Confidential (F.R.)\nOn June 22, 1973, Governor Bucher, Mr. O'Connell and I visited\nwith representatives of the Federal Deposit Insurance Corporation and the\nComptroller of the Currency.\nDuring the morning of that day the three of us met with FDIC\nChairman Wille, General Counsel Bransilver and Mr. Roddy, Chief of the\nExamination Department. We informed them of the current status of the\nU.S. National Bank and of our intent that they be kept currently informed\nabout the bank. To this end we told them that we would ask the Federal\nReserve Bank of San Francisco to arrange for weekly meetings to which\ntheir local representative would be invited. Moreover, should any\nimportant developments occur between such meetings, their local represen-\ntative would be informed promptly.\nThe liability of the FDIC was specifically discussed. Mr. Wille\nnoted that the bank recently had about $900 million in deposits. Of this\n$300 million was secured by pledge of bank assets, $300 million was\ninsured by FDIC, and $300 million represented uninsured and unsecured\nmoney.\nWe discussed the possibility of a merger, and noted that from\na competitive view Crocker National, Wells Fargo, and Bank of California,\nN.A., are the most likely candidates. As the Board has been informed\nBoard of Governors\n-2-\nJune 25, 1973\nCrocker is interested, but only if such a merger can be on an emergency\nbasis.\nDuring the afte rnoon the three of us met with Acting Comptroller\nof the Currency Watson and General Counsel Bloom. We informed them that\nthe Board felt strongly that an examiner should be in the bank at all\ntimes. Mr. Watson said that they now have an examiner visiting the bank\nfrequently, but were concerned with placing an examiner in the bank full-\ntime for two reasons. The first is that this might increase concern on\nthe part of the banking community if it became known; the second is that\nthe Comptroller's Office might be accused of having participated in\nmanagement if the bank were ultimately to fail. When these possibilities\nwere discussed, Mr. Bloom said that at a recent meeting in California\nmuch of the talk had been about the problems of U.S. National. As the\nbank's problems seem well known, we suggested that a full-time examiner\nin the bank might not have the unfavorable results envisioned.\nWe then indicated our very grave concern with what we construed\nto be Mr. Smith's continuing to participate in management. We mentioned\nthat he had been one of those delivering collateral to the Federal\nReserve Bank and that he was negotiating sales of blocks of installment\nloans. The question was raised as to whether or not this might not violate\nthe terms of the cease-and-desist order. The Comptroller's representatives\nstated that in their view Mr. Smith had to act as consultant in connection\nBoard of Governors\n-3-\nJune 25, 1973\nwith liquidation of the Westgate and BCIC lines since he was the only\none really familiar with the credits. We made it very clear that in\nour view Mr. Smith's relations with the bank should be specifically\nlimited to acting in this capacity.\nMessrs. Watson and Bloom were told of the weekly meetings, and\nthey said Mr. Larsen would be glad to participate. When we left it was\nagreed we would keep each other fully informed of any important developments.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nSmith\nRyan\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 26, 1973\nTo\nBrenton Board of C. Governors Leavitt B.G.L.\nSubject: United States National Bank,\nFrom\nSan Diego, California.\nVery Confidential (FR)\nOn June 26, 1973, I talked with First Vice President Williams\nand Vice Presidents Jamison and Reilly about this matter.\nThe U.S. National Bank continues to bring in collateral. The\nReserve Bank estimates that it could now loan $40,350,000 on the collateral\nthus far analyzed.\nWhen I asked what would be the source of funds to repay any\nborrowing, the following information was given.\n$13 million - sale of foreign time-deposit open accounts.\nA $1 million time account was recently sold at a 9-1/16 per cent discount.\n$7 million - sale of loans to United California Bank.\n$5 million - sale of loans to Harris Trust Company.\n$5 million - sale of loans to Union Bank.\n$10 million - sale of loans to First National City Bank.\n$30 million - sale of additional consumer credit loans.\n$87 million - sale of Westgate properties.\nTotal - $157 million.\nThe bank had earlier thought of reducing public funds; however,\nit has reconsidered as such reduction would necessitate sale of securities\npledged to secure the funds. Many of these securities are said to yield\nBoard of Governors\n-2-\nJune 26, 1973\nabout 4 per cent and would thus have to be sold at big discounts.\nThere is just a little bit of concern that in view of these increasing\nyields and declining bond prices, some public treasurers will demand\nadditional collateral in order that the market value of pledged securities\nwill not be less than the deposits.\nMessrs. Thomas and Rafanello (a very competent credit man\nborrowed from the Federal Reserve Bank of New York) are appraising\ncollateral which the bank is continuing to bring in. Moreover, the\nFederal Reserve Bank has employed an experienced examiner to review\ncollateral. The Reserve Bank thought it advisable to have someone with\na different point of view analyze the pledged loans.\nYesterday U.S. National was borrowing $54,300,000 in the Federal\nFunds market. If forced, it could probably continue to obtain funds from\nthis source; however, the Reserve Bank is concerned that forcing\nU.S. National to borrow too heavily in the funds market might result in\ndrying up that source of money. To this end representatives of the\nReserve Bank think it desirable that the bank lend $10-$20 million prob-\nably today to take off some of the pressure. Mr. Jamison said he will\nlet me know if they get a request from U.S. National today and what is\nthe decision of the Reserve Bank.\nDistribution: Messrs. Solomon\nMelnicoff\nO'Connell\nPartee\nRing\nSmith\nRyan\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 2, 1973\nTo\nBoard of Governors\nB.C.L\nSubject:\nUnited States National Bank (USN)\nFrom Brenton C. Leavitt\nSan Diego, California.\nVERY CONFIDENTIAL (F.R.)\nOn June 28, 1973, Messrs. Balles, Williams, Reilly, Jamison, and\nThomas of the Federal Reserve Bank and special counsel Elderkin met with\nChairman Woltman and Senior Vice President Swinney of USN. Also in\nattendance were Messrs. Glover and Walt Smith representing the Comptroller\nof the Currency and Federal Deposit Insurance Corporation.\nThe meeting began with President Balles stating the ground rules\nunder which credit would be advanced. We will grant no line of credit as\nrequested; representatives of the FDIC and Comptroller's office will be\nkept informed and will participate in at least weekly meetings; no actions\nshould be taken that will be in violation of the Cease and Desist Order.\nAt the present time collateral available will support a maxi-\nmum borrowing of about $47 million (includes the $10 million of United\nStates bonds on which we have advanced $10 million). The amount of\ncollateral on hand is not increasing. This is a matter of concern for\nit may indicate few loans acceptable for even 10(b) collateral. Bank\nrepresentatives stated they hope to be able to provide about $12 million\ncollateral the week of July 2.\nArrangements have been made for daily contact between the\nReserve Bank and borrower so that the bank's current position can be\nknown. Also, on each Tuesday the Reserve Bank is to get a weekly fore-\ncast of needs of the coming week.\nBoard of Governors\n-2-\nThe Reserve Bank is pressing USN for its plans on liquidating\nthe indebtedness of BCIC. As information is developed this huge concen-\ntration of credit becomes of even greater concern. It had earlier been\nthought that BCIC loan totals (including letters of credit) were in the\narea of $250 million. Bank officials recently stated that an additional\n$50 million in loans was also related making the total concentration\nsomething over $300 million. It is also understood that some financing\nof BCIC has been with Eurodollars through USN's Nassau branch.\nThe Reserve Bank was informed by officials of USN that they\nwere thinking of advancing $4 million to a BCIC subsidiary to construct\na tuna boat. This advance was being made pursuant to an \"oral commit-\nment.\" Bank officials were informed that this was regarded as an\nimproper use of Federal Reserve credit and quite likely a violation\nof the Cease and Desist Order which refers to \"legal commitments.\"\nLegal commitments are not usually of an oral nature and this one is\nparticularly suspect as it is understood the commitment was made solely\nby C. Arnholt Smith.\nThe Reserve Bank has asked for a detailed list of commitments\nindicating those made for a fee, those made in writing, and those orally\ncommitted.\nStatements of USN officials about liquidation of BCIC indebted-\nness thus far seem based more on hope than reality. For example, in one\ninstance a possible sale of a parcel of real estate for $10 million was\nto be financed by USN. I told Mr. Jamison the only way that the BCIC\nBoard of Governors\n-3-\nline could be straightened out was to arrange some independent\nfinancing.\nThe Comptroller of the Currency has two men in the bank\nfull-time, and has said they will develop any information we request.\nAmong other things I asked that they verify sales of loans.\nV. P. Jamison said the Reserve Bank expects to be asked for\na loan of about $45 million today. Of this $10 million would be a\nrenewal of the loan now outstanding and secured by U.S. bonds. The\nother would be a new advance and would be secured by loans.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 3, 1973\nTo\nBoard of Governors\nB.B.L\nSubject: United States National Bank (USN)\nFrom\nBrenton C. Leavitt\nSan Diego, California\nVery Confidential (FR)\nVice President Jamison called today to tell me that on Friday,\nJune 29, the Federal Reserve Bank of San Francisco made an additional\n$30 million loan to USN. The Federal Reserve Bank now has loaned $40 million\nto USN: $10 million collateralized by U.S. securities and $30 million by\nloans.\nOn Thursday USN had been borrowing $58 million in Federal Funds.\nOn Friday, after our advance, the bank borrowed $44.5 million in Federal\nFunds. The bank plans to stay in the Federal Funds market as long as\npossible. Most of the banks lending to USN are Eastern banks. Chemical,\nBankers Trust, Irving Trust, Chase, and Mellon each have loaned $5 million.\nFirst National City has loaned the bank $8 million. The other banks are\nWest Coast banks including United States National Bank of Oregon, and First\nWestern Bank and Trust Company.\nOn Friday the bank had to pay maturing certificates of deposit\ntotaling $10 million and honor a $3 million letter of credit pledged to\nsupport sale of commercial paper.\nLater in the day (July 2) Mr. Jamison again called, and said\nthat the loan to USN would be reduced by $10 million today. Federal Funds\nborrowings should be $41 million. The bank needs slightly fewer borrowings\nas total deposits increased $11 million on June 29.\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 6, 1973\nTo\nBoard of Governors\nSubject: United States National Bank\nFrom\nBrenton C. Leavitt\n2.6.L.\n(USN), San Diego, California.\nVery Confidential (FR)\nOn Tuesday, July 3, USN borrowed $30 million from the Federal\nReserve Bank of San Francisco. It also succeeded in selling $5 million\nin installment loans to Harris Trust Company of Chicago.\nOn Thursday, July 5, the bank has stated it will have to\nborrow $35 million. We have on hand collateral sufficient to permit\na total loan of about $42 million.\nOn June 29 President Balles and Vice President Jamison visited\nwith Mr. Clausen of the Bank of America. The purpose of the visit was\nto discuss the possibility of selling a pool of installment loans to a\ngroup of large California banks. Mr. Clausen thought it a good idea,\nand Mr. Medberry, Chairman of the Board of Bank of America, talked to\nMr. Swinney of USN. Mr. Swinney also thought it a good idea and talked\nto Messrs. Mulvaney and Woltman who agreed. The Bank of America was\nadvised and efforts are said to be underway which should result in sale\nof a significant volume of these loans to a consortium of California\nbanks. A reason for the sale is to permit USN to reduce its borrowings;\nFederal Funds are said to have cost it 12 percent on July 2 and 15 per\ncent on July 3.\nMr. Jamison told me that he asked Regional Comptroller Larsen\nif the bank has met the conditions imposed by the Comptroller in the\n-2-\nCease and Desist Order. To this Mr. Larsen replied to Mr. Jamison\nthat he had sent a \"dunning letter.\"\nThe steps that have been taken or are planned provide\nday-to-day operating funds. But no final resolution of the bank's\nproblems can be made until the bank and supervisory agencies face up\nto the problems contained in BCIC, and to a lesser extent, in\nWestgate. I keep urging Mr. Jamison to keep pressing the Regional\nComptroller, and I plan to discuss this with the Comptroller's office\nvery soon.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 11, 1973\nTo\nBoard of Governors\nFrom\nBrenton C. Leavitt\nB.C.L.\nSubject: United States National Bank\n(USN), San Diego, California\nVery Confidential (FR)\nOn July 10 I talked about the bank with Vice President Jamison\nwho had been in Los Angeles visiting with representatives of the Federal\nReserve branch on July 9. He stated that at this time the bank is borrow-\ning $35 million from the Federal Reserve System, and $45.5 in the\nFederal Funds market. Deposits are down about $3 million (mostly demand)\nand now total $916 million. Loans are down $2.3 million due largely to\na sale of the Westgate foods line to United California Bank; it is\nunderstood United California Bank will take on all indirect liabilities\nrelated to this particular loan.\nWhile in Los Angeles Vice President Jamison discussed with\nAssistant Vice President Thomas means to check the accuracy of USN's\nforecast. Forecasts made by USN will bè checked against actuality. We\nare receiving statements of all activities, either payments, renewals\nor necessary additional loans, in the BCIC and Westgate lines.\nProgress in solving the bank's problems is distressingly slow.\nHopefully at the meeting today between five representatives of USN and\nthe new Comptroller of the Currency with his associates, some plans for\nsolving the bank's problems will be developed. Governor Bucher,\nMr. O'Connell, and I are to meet with Comptroller of the Currency Smith,\nFirst Deputy Watson, and General Counsel Bloom on July 12.\nDistribution: Messrs. Melnicoff, Solomon, O'Connell, Partee, Ring,\nFeldberg, and Ryan\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 12, 1973\nBoard of Governors\nTo\nSubject: United States National Bank\nBrenton C. Leavitt\nFrom\n(USN), San Diego, California\nVery Confidential (FR)\nThe Cease and Desist Order of the Comptroller of the Currency\nrequires the submission. of monthly reports by USN with such reports to\nbe submitted the 10th of each month. These reports indicate that in\nthe BCIC and Westgate lines the following changes occurred between\nJune 10 and July 10:\nControl group loans\nJune 10\nJuly 10\nDifference\nBCIC\n$313.4 million\n$327.9 million\n+ $14.5 million\nWestgate\n$ 70.4 million\n$ 87.9 million\n+ $17.5 million\nThe report states that the increase was \"due to letters of credit\nand bankers acceptances maturing without payment.\" This I do not under-\nstand as both these contingent items were supposed to have been included\nin the total loans to BCIC and Westgate. It was stated that letters of\ncredit and bankers acceptances totaled approximately $115 million.\nThe report states that liquidity was equal to 18 per cent on the\nComptroller's form as of June 29.\nFrom June 1 to July 6 time deposits decreased $40 million, partially\noffset by an increase of about $7 million in savings accounts. Mr. Jamison\nsaid that Union Bank has committed to buy $30 million in loans and Bank\nof America has committed to buy $50 million. We know that Bank of America\nmay buy $50 million; however, we do not regard this as a firm commitment\nby Bank of America. Mr. Jamison has no knowledge of any commitment by\nUnion Bank and frankly doubts there is one.\n-2-\nThe report is optimistic with respect to progress stating that\nWestgate is on its way to solution. The fact that total loans have\nincreased in this line do not support this view. Incidentally, Mr. Swinney\nof USN recently informed Mr. Jamison that he had been misinformed when\nhe told Mr. Jamison that UCB had taken over the Westgate Foods line\nfrom USN. What Mr. Swinney now says actually transpired was that a\ngood loan of about $4.5 million to a savings and loan association was sold\nto the Bank of California, N.A.\nThe bank's report states that they expect soon to come up with a\nproposal on BCIC similar to the one on Westgate. Mentioned were some\nrecent sales of real estate in Bakersfield County for $3,600 per acre.\nRepresentatives of USN now seem to feel that they can sell all the property\nfor this amount; however, Mr. Jamison noted that much of this property\nwould not fall into this high-priced category and would sell for sub-\nstantially less.\nCHAIRMAN BURNS\nFor Information Only\nuly 12, 1973\nMemo to: Board of Governors\nSubject: United States National Bank (USN),\nFrom:\nSan Diego, California\nBrenton B.6.L C. Leavitt\nVery Confidential (FR)\nOn July 11, 1973, Vice President Jamison called to report\non USN. Deposits and loans as of the close of business on July 10 were\n$912 million and $588 million respectively. These figures have changed\nlittle over the past several days.\nThe bank has an excess in average reserves for the weekly period\namounting to about $10 million; thus, the loan for today (July 11) will\nbe $25 million. Federal Funds purchased on July 11 total $41 million.\nThe group of banks willing to purchase the block of consumer credits\ncontinue to work on the problems involved. It is understood that two\nrepresentatives of the Bank of America are currently in USN reviewing the\nloans.\nA letter is being dispatched from the Federal Reserve Bank to\nUSN asking for additional information on such areas as commitments,\nmaturities of large loans, and concentrations to the controlled group.\nMr. Jamison said there was another article in the Los Angeles Times about\nUSN and possible sale of real estate in Bakers Field County, California.\nThis involves a big farmer named Hollis Roberts who has some undetermined\nrelationship with BCIC. He is said to be attempting to sell lands (some\nof which are presumably BCIC loans) to Superior Oil Company for $48 million.\nAny indebtedness of Hollis Roberts was not included in the Comptroller's\nexamination and this relationship has been determined subsequently.\nA story on the radio is to the effect that the City of San Diego\nis pressing C. Arnholt Smith to come to an agreement with the city on the\nuse of its stadium.\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nJuly 20, 1973\nDate\nBoard of Governors\nTo\nSubject:\nUnited States National Bank\nBrenton C. Leavitt\n(USN), San Diego, California\nFrom\nB.6.L.\nVery Confidential (ER)\nOn July 18 Messrs. Balles, Jamison and Elderkin, representing\nthe Federal Reserve Bank of San Francisco, Messrs. Edgington and Roddy\nfrom FDIC and I met with Messrs. Smith, Watson, Bloom and Larsen of the\nOffice of the Comptroller of the Currency. The purpose of the meeting\nwas to relay to them our grave concern about USN.\nPresident Balles opened by defining our role as a lender and\nnoting specifically that in no way was it our intention to usurp their\nproper regulatory authority. Rather in view of our loan to the bank and\nthe possibility that it will increase dramatically we wished that office\nto know of our concern and to ascertain their plans for dealing with the\nbank's problems.\nPresident Balles noted that the System has not accepted either\nBCIC or Westgate loans as possible collateral in view of the difficulty\nof appraisal of total indebtedness. It was noted that these loans had\nincreased a total of $37 million (adjusted upward from $32 million after\nfurther analysis) between June 10 and July 10. President Balles expressed\nconcern about this noting that such advances might well be an improper\nuse of Federal Reserve credit.\nComptroller Smith stated that procedures for advancing new\nloans to BCIC and Westgate are being tightened. As I understand it,\n-2-\nadditional advances will be made only (1) if there is a firm binding\nlegal commitment or (2) when necessary to complete some project well\nunderway. At the conclusion of the meeting it was stated that the\nComptroller will require prior approval of his office before any loans\nare made to either company.\nOne of the requirements in the Cease and Desist Order dated\nMay 24, 1973, was that C. Arnholt Smith would execute a trust agreement,\nthe net effect of which would be to give to a trustee the power to vote\nstock owned by C. Arnholt Smith. This trustee would have to be approved\nby the Comptroller. While this agreement has not yet been executed,\nComptroller Smith stated that it was to be completed soon.\nIn the next two and one-half months maturing letters of credit\nused as guarantees and unsecured CD's will total about $110 million. The\namounts are $35 million in July, $34 million in August, and $42 million in\nSeptember. How many of the letters of credit will have to be honored by\nthe bank, and how many of the maturing CD's will not be renewed is\nunknown. At the present time documented discount notes, i.e., those\nusing letters of credit as guarantees, total about $65 million.\nComptroller Smith stated that possibilities for a takeover are\nbeing explored. It is his view that the office could approve such a take-\nover on an emergency basis. But before this could be done a bank would\nhave to review the assets and this could take as much as 90 days. In\nconnection with talk about the possibility of a takeover (by merger, or\npurchase of assets and assumption of liabilities) there was a discussion\n-3-\nof the bank's plan to sell about $50 million of its consumer loans.\nComptroller Smith indicated some concern with this noting that if all\nthe good assets were sold, it might make it more difficult for the bank\nto be merged into some other institution. He would prefer that the\nFederal Reserve System loan on these consumer notes rather than having\nthem sold to a bank or group of banks.\nThe Comptroller's Office was informed that if the bank does\nsuffer significant deposit losses or if it must honor letters of credit\ngiven as guarantee, few additional advances can be made on the collateral\npresently held by the System. We noted that additional collateral would\nhave to come from the BCIC and Westgate lines. Moreover, it was agreed\nthat a comprehensive review of these lines was essential if the true\ncondition of the bank were to be known. To obtain this appraisal the\nComptroller will have some very senior examiners analyze advances to the\ntwo companies and set them up as money good, substandard, doubtful and\nloss. These examiners will be in addition to the resident examiners\n(currently two) who will remain in this bank continuously until problems\nare resolved.\nThe meeting was worthwhile, particularly when coupled with the\nother two meetings of Board personnel with Comptroller's personnel, as\nthey point up very clearly the System's concern. Of major importance is\nthe commitment on the part of the Comptroller to analyze the BCIC and\nWestgate lines, for as previous memoranda have indicated we will not know\nwhat is the condition of this bank until that has been done.\n-4-\nOn July 20, 1973, Mr. Blanchard of the Office of the Comptroller\nof the Currency called to state that the office was trying to work out a\nsale of USN to Crocker National, Wells Fargo, or Barclays Bank of\nCalifornia. He asked if Barclays could acquire USN by purchase and\nassumption and I told him it could. This was checked with Board counsel\nwho agrees.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nLeavitt\nJamison, V.P. Federal Reserve Bank of\nSan Francisco\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 25, 1973\nTo\nBoard of Governors\nSubject: United States National Bank\nFrom\nBrenton C. Leavitt\nB.G.L\n(USN), San Diego, California\nVery confidential (FR)\nOn July 23 this bank was borrowing $20 million from the\nFederal Reserve System and $30 million in the Federal Funds market.\nVice President Jamison said that the same borrowingswere expected for\nJuly 24 and 25.\nThe Bank is issuing 4-year certificates of deposit at a 7-1/2\nper cent rate. Thus far it has attracted about $21 million from this\nsource, and the current rate of sales is about $3.5 million per day.\nOn July 23 examiners from the Office of the Comptroller of\nthe Currency started a credit investigation. Presumably they will\nconcentrate almost exclusively on BCIC and Westgate loans and possibly\nsome other troublesome loans at the Fidelity office.\nThe Comptroller's examiners were accompanied by representatives\nof Wells Fargo bank. That bank is considering a purchase of assets and\nassumption of liabilities of USN with their decision dependent upon the\nfindings of their investigators.\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nLeavitt\nJamison, Federal Reserve Bank of San Francisco\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate August 31, 1973\nTo\nBoard of Governors\nSubject: United States National Bank\nFrom\nBrenton C. Leavitt\n(USN), San Diego, California.\nVery Confidential (FR)\nOn Tuesday, August 28, Governor Bucher, Mr. O'Connell, and I\nmet with Chairman Wille, Comptroller Smith, FDIC Director LeMaistre,\nand several of the senior staff of those two organizations. The purposes\nof the meeting were (1) to be briefed by National Bank Examiner Hans Reiss\nwho was in charge of the credit investigation of USN and (2) to discuss\nin general terms the possibility of FDIC assistance to USN or guaranty to\na bank that might acquire USN.\nMr. Reiss commented on the recently completed credit investi-\ngation which was concerned only with loans to C. Arnholt Smith and his\ninterests. Based on his investigation he concluded that: loss classifi-\ncations totaled $45,466,000; doubtful classifications $98,330,000; and\nsubstandard classifications were $193,043,000. Mr. Reiss briefly\ncommented about some of the poorest of these loans stating that many\nclassified as doubtful or loss either had no collateral, collateral\nappraised at only a fraction of the total of the loans, or no discernable\nmeans of payment. Many of the appraisals on real estate were said to be\nmade by C. Arnholt Smith with little thought given to them. For example,\nit was reported that he made five appraisals on different parcels of\nreal estate while seated in his office one morning. The bulk of these\nloans are in the BCIC group. Mr. Reiss stated that loans to the Westgage\ngroup are regarded as collectible although substandard in quality.\n-2-\nThe equity capital funds of the bank total $47,557,000 and\ndebentures equal $14,750,000. Deposits are continuing to increase,\nborrowings from the Fed are remaining in the neighborhood of $25 million\nand a like amount is being purchased daily in the Federal Funds market.\nUninsured deposits are equal to 43 per cent of total deposits. This\namounts to a little over $300 million. Four banks are known to be\ninterested in acquiring USN. They are Wells Fargo, Crocker National,\nUnited California Bank, and Bank of California, N.A.\nIt is understood that banks interested in acquiring USN would\nbe willing to do so only with some sort of guaranty by FDIC that would\nlimit their exposure. Comptroller Smith stated that in his view, it\nwas inconceivable that a bank of this size would be permitted to fail.\nMr. Wille stated that the FDIC was willing to study very carefully\nquestions raised by FDIC assistance in this matter. In response to a\nquestion Mr. Wille stated that the corporation would need probably at\nleast two months to determine how and what shape such assistance might\ntake.\nDuring the next 60 days a total of $68 million of certificates\nof deposit and letters of credit will mature. The Comptroller's office\nmade no estimate of how many of these can be rolled over. Another prob-\n1em discussed was that there will be a request for a report of condition\nfrom all banks around the first of October, give or take a few days.\nIssuance of a report by this bank indicating a reasonably satisfactory\n-3-\ncondition when its true condition is known to supervisors is a question\nto which the Comptroller's office plans to give consideration.\nOn August 30 Mr. Coyne told me that he had had a call from\na reporter for a San Diego based newspaper. The reporter stated that\nhe had been informed that United California Bank was going to take over\nUSN. He was told that no application had been submitted to the Fed and\nthat we knew of no such proposal.\nDistribution: Messrs. Solomon\nMelnicoff\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nCoyne\nJamison\nRo: Exec. Jession\nU.S note Bb- Diego\nAI WASHINGTON\n1973 SEP 6 PM 600 00\nBOARD OF BUYLANDRS\nOF\nFEDERAL RECEIVE SYSTEM\n130.\n121 o' CONNELL\nIN ACCORDANCE WITH OUR TELEPHONE COVERSATION TODAY AND FOR COMMUNICATION\nTO THE OFFICES OF THE COMPTROLLER OF THE CURRENCY AND THE FEDERAL DEPOSIT\nINSURANCE CORPORATION, THERE FOLLOWS THE TEXT OF A RESOLUTION ADOPTED TODAY\nBY OUR BOARD OF DIRECTORS:\nIT IS MOVED AND SECONDED THAT THE BANK IS AUTHORIZED TO MAKE FURTHER ADVAN\nCES TO THE PROBLEM BANK IN LIGHT OF THE NEEDS, AMONG OTHERS,\nTO MAINTAIN SOUND CREDIT CONDIDIONS AND A SOUND AND ORDERLY FINANCIAL\nSYSTEM. THE BANK IS DIRECTED TO CONVEY ATHE URGENCY OF THE SITUATION\nTO THE COMPTROLLER OF THE CURRENCY AND THE FEDERAL DEPOSIT INSURANCE\nCORPORATION AND TO REQUEST THAT APPROPRIATE ACTION BE TAKEN AS RAPIDLY\nAS POSSIBLE TO EFFECT A RESOLUTION OF THE MATTER IN THE BEST INTEREST\nOF THE PUBLIC. THE BANK IS FURTHER DIRECTED T O KEEP ITSELF AND THIS\nAND THIS BOARD FULLY INFORMED AS TO THE ACTIONS OF THE COMPTROLLER AND\nFDIC IN THIS REGARD AND TO CONTINUE TO OFFEER WHATEVER ASSISTANCE\nTHOSE AGENCIES MAY REQUIRE\nREILLY\n3087CC 09061803 A3AEH 09061759 066 A3BEN 078\nCHAIRMAN BURNS\nExec\nAGENDA ITEM #\nSEP 7\n1973\n(DATE)\nFOR INFORMATION PRIOR TO CONSIDERATION\nAT A BOARD MEETING\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate September 6, 1973\nTo\nBoard of Governors\nSubject: United States National Bank\nFrom Brenton C. Leavitt\n(USN), San Diego, California.\nStrictly Confidential (FR)\nWhen Governor Bucher, Mr. O'Connell, and I met on August 28,\n1973, with representatives of FDIC and the Comptroller's office to discuss\nthis very serious problem bank (refer to my memorandum of August 31) the\nneed for an additional letter to the Board from the Office of the\nComptroller was discussed. This seemed advisable since the Comptroller's\nearlier letter stated that we would be informed of significant changes in\nthe bank's condition. The Comptroller's representatives said that such a\nletter would be forthcoming.\nOn September 4 I called First Deputy Comptroller Watson to ask\nabout this letter. Mr. Watson stated that he had been out of town the\nlatter part of the previous week and that we would have the letter soon.\nOn September 5 I spoke with representatives of the Federal Reserve Bank\nof San Francisco to tell them about the letter, and to determine the\nattitude of the Federal Reserve Bank in view of the condition of the bank\nas reflected by the recently completed credit investigation. A copy of\nmy August 31, 1973, memorandum had previously been sent to the Reserve\nBank.\nLater that afternoon President Balles, First Vice President\nWilliams, Vice Presidents Jamison and Reilly, and special counsel Elderkin\ncalled to discuss the matter and to indicate considerable concern about\nBoard of Governors\n-2-\nSeptember 6, 1973\nStrictly Confidential (FR)\nthe letter. The entire situation was discussed and arrangements were\nmade for Mr. O'Connell and me to talk with representatives of the Federal\nReserve Bank later that day.\nLate in the day Mr. O'Connell and I spoke with the same group\nfor a little over an hour. During that time we explained to them that\nit was our view that the System had been officially placed on notice when\nGovernor Bucher, Mr. O'Connell and I met with several representatives of\nFDIC and the Office of the Comptroller. The sending of a letter would\nmerely place in writing something that had been transmitted orally. This\nposition was discussed and I believe there is general agreement that our\nview was the correct one.\nPresident Balles expressed particular concern about the Reserve\nBank's liability and that of the bank's board of directors in lending to\nan institution that is either insolvent or probably insolvent. These\nterms were used by the Comptroller's representatives during the August 28,\n1973, meeting, and again on September 5, 1973, when Comptroller Smith\nspoke with Mr. O'Connell at the same time I was talking with the San\nFrancisco representatives.\nThe directors of the Federal Reserve Bank meet today, and\nPresident Balles will inform them of the condition of this bank. It is\nunderstood that he will say that they have been lending to a solvent bank,\nbut that future loans will be to a bank that is probably insolvent. We\nBoard of Governors\n-3-\nSeptember 6, 1973\nStrictly Confidential (FR)\ndiscussed the appropriateness of the Federal Reserve Bank lending to\nUSN with this knowledge. Specifically noted was the fact that in lend-\ning to banks a Federal Reserve Bank was \"to give due regard to the\npurpose of the credit and to its probable effects of the maintenance of\nsound credit conditions, both as to the individual institution and the\neconomy generally.\" The Federal Reserve Bank can, if it wishes, continue\nto loan to this institution if it makes a finding that to discontinue\nsuch lending would have adverse effects on the economy and if there is\nsecurity available to collateralize the loan. But it should be noted\nthat in such lending any Reserve Bank may be faced with a loss should the\ninstitution be closed. The collateral held by the Federal Reserve Bank\ncould then well be subject to a determination by the courts. The Bank\nmight be placed in the position of a general creditor. If the Reserve\nBank wished to cease lending it would be very important to have a letter\nfrom the Comptroller's office commenting on the bank's condition.\nAs of September 5 USN was borrowing $15 million from the Reserve\nBank and $20 million in Federal Funds. Recently there has been a consider-\nable amount of publicity about the bank, and President Balles is concerned\nthat a deposit outflow may materialize which would require greater lending\nby the Federal Reserve Bank.\nDuring Mr. O'Connell's conversation with Comptroller Smith he\nwas told that the FDIC is moving as rapidly as possible to come to some\nBoard of Governors\n-4-\nSeptember 6, 1973\nStrictly Confidential (FR)\ndetermination as to the form of assistance they can appropriately\nprovide. It looks as though the corporation will either guarantee a\nclean bank, a 90 per cent clean bank, or something along this line.\nInterested bankers will then be informed and bids requested. Mr. Watson\ntold me today that Wells Fargo is weighing the possibility of acquiring\nUSN without FDIC assistance.\nA copy of the Comptroller's letter dated September 6, 1973,\njust received this afternoon, is attached.\nDistribution: Messrs: Solomon\nMelnicoff\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nCoyne\nJamison\nDEPARTMENT THE OF THE TREASURY\nTHE ADMINISTRATOR OF NATIONAL BANKS\nWASHINGTON, D.C. 20220\n1789\nOffice of the\nComptroller of the Currency\nSeptember 6, 1973\nBoard of Governors of the\nFederal Reserve System\nWashington, D. C. 20551\nAttention: Governor Jeffrey M. Bucher\nGentlemen:\nBy letter dated June 19, 1973, the Acting Comptroller advised you\nthat our most recent examination of United States National Bank, San\nDiego, California, had shown that bank to have potentially severe\ncredit problems. You were also told that this Office would advise you\nof any significant change in the condition of the bank.\nOn August 28 Governor Bucher and Messrs. Leavitt and 'Connell\nof the Board staff attended a meeting at the FDIC at which time we\nreviewed the status of this bank as reported by our examiner who had\nbeen visiting the bank for the last two months and who was present at\nthe meeting. We understand that you wish written confirmation of the\nreview we conducted at this meeting.\nAs you are well aware from the reports made by the bank to the\nFederal Reserve Bank of San Francisco, United States National Bank\nexperienced a deposit runoff of approximately $100 million during\nJune 1973, the month following the filing of the SEC lawsuit against\nMr. C. Arnholt Smith, Westgate California Corp. and others. Most of\nthis runoff resulted from the withdrawal of money market certificates\nof deposit. The bank, however, picked up approximately $35 million in\ndeposits during July 1973 through aggressive use of the newly permitted\nfour year certificate of deposit with an unlimited interest rate.\nDeposits in the bank have been stable at approximately $935 million for\nmore than a month.\nSince May 1973 the management of United States National Bank has\nbeen working diligently with the collection of loans required by our\ncease and desist order of May 24, 1973. Some progress has been made,\nand the loan portfolio probably is in better shape now than it was when\nwe wrote you on June 19, 1973. A collateral and operating Preend has\nSEP 6 1973\nJEFFREY M. BUCHER\n- 2 -\nbeen obtained with Westgate California Corp. and all of its subsidiaries,\nand we believe the approximately $85 million in loans to these companies\nare better secured, supported by more relevant credit information, and\nare more likely to be collected than they were three months ago.\nSimilarly, Mr. Hollis Roberts, who controls agricultural companies which\nhave borrowed approximately $100 million from the bank, has been most\ncooperative in supplying credit information and has indicated a willing-\nness to sign an agreement similar to that of Westgate. Our examiner\nbelieves these loans to be ultimately collectible.\nOn the remaining loans whose collection is required by our cease\nand desist order, the credit files of the bank still have many\ndeficiencies which make it difficult to evaluate the loans. Our\nexaminer's best guess is that approximately $32 million of these loans\nultimately will be uncollectible. In addition, he believes that $13.5\nmillion in contingent liabilities in the form of letters of credit\nor bankers acceptances will become payable by the bank, without the\nbank being able to collect ultimately from the borrowers. In accordance\nwith your request, a copy of our examiner's visitation report containing\nthese evaluations is enclosed.\nI have not yet adopted the figures contained in the examiner's\nreport, and I have not determined the bank to be insolvent. I am, of\ncourse, seriously concerned about the condition of the bank and believe\nthat its ultimate failure is probable. As a precautionary measure,\ntherefore, I am vigorously pursuing the potential sale of United States\nNational Bank to a larger institution. I am also exploring with the\nFDIC the possibility of that Corporation assisting in any such purchase,\nif such assistance appears necessary.\nAs you know, the deposit runoff has caused severe liquidity problems\nfor United States National Bank. The bank's ability to pay its obligations\nwhen due has been maintained by borrowings from other commercial banks and\nfrom the Federal Reserve Bank of San Francisco. Any new restrictions on\nthese borrowings might cause the insolvency of United States National Bank\nwith consequent damage to the uninsured deposits at that bank, and to the\nbanking industry and the economy as a whole. I assume that no changes are\ncontemplated in the borrowing arrangements between United States National\nBank and the Federal Reserve Bank of San Francisco, and that I will be\nconsulted well in advance of any proposed changes in these arrangements.\nVery truly yours,\nComptroller Jin the Smith Smill Currency\nEnclosures\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate September 20, 1973\nTo\nBoard of Governors\nFrom\nBrenton C. Leavitt\nB.b.L.\nSubject: United States National Bank\n(USN), San Diego, California\nStrictly confidential (FR)\nOn September 19 President Balles and Special Counsel Elderkin\nrepresenting the Federal Reserve Bank of San Francisco, Messrs. o' Connell\nand Leavitt of Board's staff met with Chairman Wille, Director LeMaistre,\nand General Counsel Bransilver of FDIC. The purpose of the meeting was\nto discuss FDIC's efforts to work out some solution to the problems con-\nfronting USN. President Balles opened the meeting by indicating his\ndeep concern about this problem and specifically noting a story which\nrecently appeared in a San Diego newspaper. That story stated that USN\nhad recently lost deposits and a run on the bank was possible. Mr. Balles\nstated that in his view USN should not be permitted to fail and that it\nwas necessary to solve its problems as soon as possible.\nChairman Wille told the Federal Reserve representatives of\nFDIC's progress to date. The Corporation has concluded that the only\nreasonable way in which it can be of material assistance is to offer to\nprovide a \"clean bank\" which could be merged into some other large\nCalifornia bank. The three California banks which have evidenced an\ninterest in acquiring USN have been briefed by FDIC. These banks are\nCrocker Bank, Wells Fargo, and Bank of California, N.A. Briefly the\nFDIC's plan is that USN would be placed in receivership and most liabi-\nlities (on the basis of current figures about $900 million) would be\n-2-\nassumed by a bank. The only liabilities to be excluded would probably\nbe $10 or $11 million related to some foreign transactions and deposits\nof individuals, partnerships, and corporations having business dealings\nor connections with C. Arnholt Smith. The assuming bank would not be\nexpected to acquire any of the Smith related loans and other assets\nwhose values appear to be inflated. In order to provide a clean bank\nwith assets equal to liabilities to be assumed, FDIC would have to put\nup somewhere between $200 and $300 million in cash. (Since total loans\nto Smith, his interests, and business associates totaled over $400 million\nabout three months ago and since these will all be retained by FDIC,\ntheir cash contribution would likely be toward the upper end of their\nestimate.) Under the Corporation's plan the Federal Reserve System and\nprobably banks selling Federal Funds to USN would be paid. The FDIC\nwould enter into a \"save harmless\" agreement with the assuming bank so\nthat it would be protected against lawsuits, unbooked liabilities, and\nother contingent liabilities arising from other transactions taken\nagainst USN.\nChairman Wille noted that the Corporation would not be ready\nto proceed during September, but he hoped that the assumption could be\naccomplished during the month of October. Chairman Wille mentioned that\nif the bank were placed in receivership, there will be a period of\nuncertainty before it would be known if any large California bank will\nacquire USN. Hopefully there will be more than one bank bidding for\nthe clean bank; if there is not, FDIC will attempt to negotiate with any\n-3-\nsingle bank that might be interested. If the bank is to be acquired\nby a California bank, it is possible that USN would be closed for a\nday or two until such time as the assuming bank takes over and reopens\noffices. If there is an assumption, of course, depositors (other than\npossibly those mentioned above) will suffer no losses. Chairman Wille\nstressed that the Corporation was bound by the statute to take that\ncourse of action which will result in least loss to the Corporation.\nFor instance, if the Corporation concluded that it would suffer less\nloss by liquidating the bank than by providing a clean bank, by law it\nwould be forced to liquidate the bank. In that instance depositors\nhaving more than $20,000 on deposit presumably would suffer some loss.\nChairman Wille stated that he and Comptroller Smith plan to\nvisit with the Department of Justice to determine if the Department\nwould be agreeable to foregoing suit on competitive grounds if either\nBank of America or Security Pacific Bank of Los Angeles were to acquire\nUSN. If the Department will agree not to sue, these banks will be con-\ntacted to determine if they might be interested.\nIt was pointed out that Mr. Elderkin is a member of the same\nlaw firm (Brobeck, Phleger and Harrison) that represents Wells Fargo\nBank. The possibility of conflict of interest was raised; however,\nMr. Elderkin stated that careful measures had been taken to assure that\nthere would be no conflict. He mentioned that he does not discuss this\nmatter with other members of the law firm and those individuals working\non the Wells Fargo account have been instructed not to discuss this case\nwith him in any way.\n-4-\nGeneral Counsel Bransilver stated that Corporation would\nreasonably soon have a draft of the agreement under which some bank\nmight acquire USN. Mr. Elderkin asked if a copy could be sént to him.\nAfter discussion, it was concluded that the document should be sent\nto Vice President Louis Reilly, general counsel for the Federal Reserve\nBank. It seemed best that no such document be mailed to the firm of\nBrobeck, Phleger and Harrison. Mr. Bransilver was later asked by\nMr. O'Connell if he would also make available to Board staff the draft\nand subsequent final memorandum. Mr. Bransilver agreed to do this.\nThere was some discussion of the extent to which the Federal Reserve\nmight make additional loans. (As of September 18 the Federal Reserve\nBank had $30 million loaned to USN.) Mr. Balles noted that they had\nsufficient collateral to make loans totaling about $105 million; if\nthe Reserve Bank was asked for more, the position would have to be\nstudied carefully.\nThe meeting then adjourned. Chairman Wille was extremely\nforthright in providing Federal Reserve representatives a complete\npicture on the Corporation's activities to date. It seems that the\nCorporation is as concerned as is the Federal Reserve System in bring-\ning this problem to a satisfactory conclusion.\nDistribution: Messrs. Solomon\nMelnicoff\nO'Connell\nPartee\nRing\nFeldberg\nRyan\nCoyne\nJamison\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS\nOF THE\nEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate\nOctober 5, 1973\nBoard of Governors\nSubject:\nUnited States National Bank\nTo\nBrenton C. Leavitt\n(USN), San Diego, California.\nFrom\nStrictly Confidential (FR)\nRepresentatives of FDIC, including Mr. Wille at least some of\nthe time, have spoken to the following seven California banks about\nacquiring USN: Security Pacific, Union Bank, United California Bank, all\nof Los Angeles, Wells Fargo Bank, Bank of America, Bank of California,\nand Crocker National, all of San Francisco. Three banks continue to\nevidence some interest in acquiring USN. These are Security Pacific,\nBank of America, and Wells Fargo. The first two would pose significant\ncompetitive problems and are said to be less interested than is Wells.\nWells continues to be by far and away the bank most interested in acqui-\nring USN.\nIt is reported that FDIC is offering a clean bank with all\n\"Smith\" loans taken out and also power of the acquiring bank to return\nan additional $15 million in loans to FDIC for any reason. When, or even\nif, an acquisition will occur, is not yet known. It may possibly be as\nsoon as this weekend, but is more likely to be over the weekend beginning\nOctober 12.\nAs of October 2 USN was borrowing $40 million from the Reserve\nBank and $25 million Federal Funds from five different commercial banks;\nChemical, New York, First National State, Newark, Irving, New York,\nSeattle First, and Mellon of Pittsburgh.\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 19, 1973\nBoard of Governors\nTo\nSubject:\nUnited States National Bank,\nBrenton C. Leavitt\nFrom\nSan Diego, California.\nB.C.L.\nVe y Confidential (F.R.)\nOn June 18, 1973, Messrs. O'Connell, of the Board's staff,\nKelly, Jamison, Aamodt, and Thomas of the Reserve Bank's staff, and\nElderkin, outside counsel, met with Chairman of the Board Richard Woltman,\nPresident James Mulvaney, and Senior Vice Presidents Richard Spencer and\nJohn Swinney of U.S. National.\nPresident Mulvaney opened the meeting by commenting about the\ncease-and-desist order issued by the Comptroller of the Currency. That\norder contains a number of provisions including (1) indemnification\nagainst loss to the bank by C. Arnholt Smith, (2) that the only relationship\nof Smith with the bank will be that of consultant, (3) that Smith will place\nhis bank stock in a voting trust, and (4) that activities of Westgate and\naffiliated companies will be completely separated from the bank.\nWestgate has several subsidiary companies of which the most\nimportant from the point of view of dollars involved are the following:\n1. Air California. Efforts are underway to sell this company.\nDuring the first five months of 1973, the company had a profit of\n$700,000 which is regarded as rather surprising since it has been\noperating unprofitably for some time.\n2. Yellow Cab companies operating in several California cities.\nThe value of these companies is estimated at $20 million and the\ninvestment therein is $8,700,000. No figures were given on debts\nagainst the cabs although it is known that they are pledged as\ncollateral.\n-2-\n3. San Diego Real Estate. The two principal parcels involved\nare Westgate Plaza, an elegant hotel, and a 25-story office building.\nThe hotel is a cash drain on the company and it is generally believed\nWestgate will be lucky to get its money out of it. The office build-\ning cost $10,700,000 and has an estimated value of $22 million.\n4. Westgate Foods. The parent Westgate corporation owns 49 per\ncent of this operation. Westgate's investment in the company is\n$17,600,000 and the entire company is valued at $80 million. If this\ncompany were sold, the purchaser would have to assume a long-term\ndebt of $48 million. The company is engaged in catching and canning\nfish and owns and operates a large number of tuna boats. It is known\nthat some, possibly all of these boats, have been pledged as collateral.\nThe other major loans to Smith companies are those to British\nColumbia Corporation represented by loans totaling $188 million on various\nparcels of real estate in Kern and San Diego counties. This real estate is\nbecoming increasingly difficult to sell as much of it lacks utilities and\necological groups are opposed to further development. Purchasers would\nvery likely hope to pick up bargains and attempt to bid down asking prices.\nThe bank's liquidity needs for the period to the end of September\nare as follows. Virtually all of these certificates, bankers acceptances,\nand letters of credit will have to be paid as there is virtually no chance\nof roll over.\n-3-\nBankers\nTime CD's\nAcceptances\nLetters of Credit\nTo June 29\n$12,300,000\n$4,694,000\n$ 9,104,000\nJuly\n6,000,000\n5,300,000\n15,250,000\nAug.\n15,500,000\n5,027,000-\n1,151,000\nSept.\n19,950,0002/\n75,000\n4,200,000-\nLiquidity needs to July 31 are $52 million and to September 30 are\n$94 million.\nOn June 18, 1973, the bank was borrowing $42 million in Federal\nFunds from six banks. Bank of America had loaned $8 million secured by\n$14 million time certificates due from foreign banks. United California\nBank, First National City Bank, and City National of Beverly Hills had\neach loaned $8 million in Federal Funds. United States National of\nPortland, Oregon, and Irving Trust of New York each loaned $5 million.\nThe bank would like to have a Federal Reserve loan of $50 million\nfor 60 days (this represents an additional $40 million as we are now lending\n$10 million to the bank). This loan would be used to pay Federal Funds to\nshow the banking industry that the bank has the ability to clear these.\nOn June 18 the bank had $41 million in its reserve account.\nShould the Federal Reserve Bank make this $50 million loan and\nthen have to cover CD's, etc., maturing in July, we could have\n$90-$100 million loaned out by July 31.\n1/ $1,000,000 self liquidating, secured by warehouse receipts\n$3,200,000 \"\n\"\nII\n\"\n\"\n\"\n$ 307,000 \"\n\"\n\"\n\"\n\"\n\"\n2/ Should be netted as $4,200,000 included in $19,950,000\n-4-\nExaminers worked over the weekend appraising collateral.\nLoans totaling $11,600,000 have been found acceptable and an additional\n$39,700,000 will be acceptable as soon as a few minor technical defects\nare cleared. This amount. to $51,300,000. On the afternoon of June 18\nan additional $61 million worth of loans was submitted to the Reserve\nBank as possible collateral.\nPlanning on the part of U.S. National has been poor. They have\nnot sold any assets and they do have good loans they could sell to raise\nfunds. They are talking in terms of borrowing $90 million (it could be\nmuch higher) for one or maybe two years. Equity of the bank is equal to\nabout $45 million.\nI asked Mr. Jamison for his appraisal of management. He said\nhe was not impressed with the four senior officials with whom he visited.\nThey did not seem to be well informed, were not knowledgeable about\nspecifics of the bank, and acted like individuals who had long worked for\na domineering personality.\nThere is a copy of a letter addressed to the Board of Governors\nfrom Acting Comptroller of the Currency Watson in which he concluded that\nat the time of March 22, 1973, examination the bank was solvent.\nAttachment\nDistribution: Messrs. Melnicoff\nSolomon\nO'Connell\nPartee\nRing\nSmith\nRyan\nCHAIRMAN BURNS\nAGENDA ITEM #\n(DATE) OCT 1 7 1973\nFOR INFORMATION PRIOR TO CONSIDERATION\nAT A BOARD MEETING\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate October 17, 1973\nTo\nBoard of Governors\nSubject: Proposed acquisition of assets\nand assumption of liabilities of United\nFrom\nLegal Division (B. B. Tuttle)\nStates National Bank (USN), San Diego\nCalifornia, by Union Bank, Los Angeles.\nStrictly Confidential (FR)\nAttached is correspondence from the Comptroller of the Currency\nand the Department of Justice relating to the above matter.\ncc: Mr. Melnicoff\nMr. Feldberg\nMr. Leavitt\nInfo: Min Bickel\nBOARD OF GOVERNORS\n1016\nOF\nDEPARTMENT THE TREASURY THE\nOF THE\nFEDERAL RESERVE SYSTEM\nTHE ADMINISTRATOR OF NATIONAL BANKS\n1973OCT17 An 9.24\nWASHINGTON, D.C. 20220 ECEIVED\n1789\nOFFICE OF THE CHAIRMAN\nOffice of the\nOctober 16, 1973\n#2205\nComptroller of the Currency\norig. Tuttle\nThe Honorable\nArthur F. Burns, Chairman\nFederal Reserve Board\n20th and Constitution\nWashington, D. C. 20551\nDear Mr. Burns:\nWe understand that Unionamerica Company, the parent holding\ncompany of Union Bank of Los Angeles, California, has requested the\nBoard of Governors to grant provisional approval to the acquisition\nby Union Bank of the assets and liabilities of United States National\nBank, San Diego, California. As you know, contingency plans are\npresently being made by this Office in conjunction with the FDIC for\na possible emergency takeover transaction of USNB in the event that\nsuch action becomes necessary because of the deteriorating condition\nof USNB. Present plans call for the solicitation of sealed bids by\nthe FDIC, as receiver, from the various interested and eligible\nCalifornia banks. The Union Bank has in effect requested permission\nfrom the Board of Governors to submit such a bid.\nThis is to advise that the condition of USNB is such as to\nnecessitate and justify expedited handling of the Union Bank request\nand we would very much appreciate it if the Board could take whatever\naction is necessary in this regard at its meeting tomorrow.\nSincerely,\nComptroller\nJi James E. of the Smith Smith Currency\nFiles\nCorres\nBaker\nGrossman\nSims\nHold (3)\nJSims/DIBaker:ala\nOctober 5, 1973\nDIB\n60-111-0\nCONFIDENTIAL\nHonorable Frank Wille\nChairman\nR.\nFederal Deposit Insurance Corporation\nGERALD\nFORD\n550 17th St., N.W.\nWashington, D.C. 20429\nLIBRARY\nDear Frank:\nWhen we last discussed the United States National Bank\n(\"USN\") situation, I promised that we would undertake an\nexpedited analysis of the competitive relationship between\nUSN and the other large banking organizations mentioned as\npossible purchasers.\nBecause of the time pressures, we have concentrated on\nthe effect on direct competition. If USN were a fully viable\norganization, we would probably be concerned about the purchase\nof USN by any of the other large California banking organizations,\nfrom the standpoint of potential competition and the competitive\nstructure in the state as a whole. However, given USN's present\ndifficulties, we feel that the horizontal analysis we have\nundertaken provides a reasonable guide to the relative competitive\nimpact of the sale of USN to any of the banking organizations\ndiscussed.\nOne additional caveat should be noted. The actual statistics\nused represent our best effort in the time available, and there\nmay well be slight variations or inconsistencies contained\ntherein. We are of the present opinion, however, that they\nare representative of what a fuller and more precise analysis\nwould disclose. If any errors are immediately noticeable, we\nwould appreciate being informed.\nThe statistics are presented in 4 different tabulations.\nThe first shows the percentage of offices held by all banks\nin all cities in which USN has offices; the second shows\nthe percentage of deposits held by all banks in such cities;\nthe third shows for each such city the number and amount of\nboth offices and deposits held by all banks in such cities;\nand the fourth shows, for each major bank, the number of\noffices and amount of deposits held in all cities in which\nUSN has offices. All deposit data represent total deposits\nas indicated in the FDIC Summary of Deposits for June 30, 1972.\nFrom these tabulations, it is clear that Bank of America\n(\"B of A\") and Security Pacific National Bank (\"SP\") are\ndominant competitors in almost every city in which USN has\noffices. In Los Angeles and San Diego, the cities in which\nUSN has both its largest number of offices and its greatest\namount of deposits, B of A and SP are the largest competitors.\nIn Los Angeles, B of A holds about 28% of the offices and about\n27% of the deposits; in San Diego, it has 32% of the offices\nand over 30% of the deposits. For SP, the comparable figures\nin Los Angeles are 23% of the offices and 26% of the deposits;\nin San Diego, SP has 14% of both offices and deposits. B of\nA and SP each have offices in all but five of the 38 cities\nin which USN has offices; in 22 of the 30 cities in which both\nB of A and SP have offices, they hold the two largest positions,\nand one or the other holds the largest position in 11 other\ncities. Acquisition of USN by either B of A or SP would clearly\npresent serious antitrust problems.\nUnited California Bank also presents serious antitrust\nproblems, although even 80 it would still be preferable to\nB of A or SP as a purchaser of USN. It has offices in 24 of\nthe 38 USN cities, and either a leading or substantial market\nshare in at least 13 of those cities. In Los Angeles, United\nCalifornia has 10% of the offices and 14% of the deposits;\nin San Diego, 5% of the offices and 3% of the deposits. In\nBuena Park, Costa Mesa, El Monte, Hemet, Huntington Beach,\nMonrovia and Rolling Hills Estates, all cities in which USN\nhas at least a 5% market share, United California has substantial\n(over 10%) market shares.\nGERALIA FORD\n2\nof the remaining potential purchasers, Crocker-Citizens\nwould appear to present the most competitive problems, followed\n(in descending order of problems) by Wells-Fargo, Union Bank,\nFirst-Western and Bank of California. Bank of California\nclearly presents the least competitive problems, with offices\nin only 8 of USN's cities, and a major market share in only\none such city. Based on our present information, I believe\nthat the Department would not seek to challenge the purchase\nof USN by any member of this latter group. This is not to\nsay, however, that a choice between these banking organizations\nshould ignore competitive factors, and assuming that any bids\nreceived from any of these banks are in a relatively small\nrange, we would hope that both the FDIC (as receiver) and\nthe approving agency would give primary consideration to the\norganization presenting the least competitive problems.\nAs you will recall, I gave you a rather rapidly-done\nstaff memorandum on the legal issues involved in this situation\nwhen we last met. We have found nothing since our meeting\nwhich would alter the conclusions expressed in that memorandum,\nand you should understand that it represents the Department's\nposition. We are in the process of putting some polish on\nthat document, and we willsubmit the finished product to\nyou in the near future.\nClearly, this whole matter is of great importance to\nthe Department. We appreciate being consulted in advance\nthe way we have, and will do the best we can to contribute\nconstructively when the day of reckoning is at hand.\nSincerely yours,\nDONALD I. BAKER\nDeputy Assistant Attorney General\nAntitrust Division\nCC: Edward Bransilver\nGERA\nABRARY\nBOARD OF GOVERNO OF THE FEDERAL RESERVE SYSTEM\nCharman Burns- -\nFORD & BRARV\nFor use if\nUnion Bank is the\nsuccessful hidden to\nNational Bank of\nacquire united States\nSan Diego Bidding\ntotah place 10/18. Thursday\nB.O.L.\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate October 18, 1973\nTo\nChairman Burns\nSubject:\nPossible acquisition of United\nStates National Bank, San Diego, Calif.\nFrom\nBrenton C. Leavitt\nby Union Bank, Los Angeles, California\n(Strictly Confidential (RK)\nBidding for United States National Bank is now scheduled to take\nplace the afternoon of October 18 instead of October 19. The bidding will\nbe at the Federal Reserve Bank of San Francisco. In the event Union Bank,\na state member bank, is the successful bidder, you may have calls from\nnewspaper reporters or you may wish to inform senior members of the banking\nand currency committees of reasons for our action.\nThe Board has known for some time that this bank was in trouble\nand has been extending credit through the discount window since June 13,\n1973. At first our loan was secured by U.S. bonds. Later a portion of it\nwas secured by pledged loans, and then loans were made only after consulta-\ntion with the FDIC and Comptroller of the Currency. Recently our loan has\nbeen for about $30 million.\nThe Board knew that determined efforts were being made to salvage\nthis bank and it was the System's judgment, both Reserve Bank and Board,\nthat the public's interests would be best served by lending to the bank in\norder that a salvage operation could be worked out. At all times our\nloans were secured and advanced in accordance with the statutes.\nThe acquisition of certain assets and certain liabilities of\nUnited States National Bank by Union Bank was approved pursuant to the Bank\nMerger Act (12 U.S.C. 1828(c)). The Board received information from the\nComptroller of the Currency that an emergency situation existed which\n-2-\nrequired that the Board act immediately pursuant to the provisions of the\nBank Merger Act in order to safeguard depositors of USN. It was the\nBoard's view that any anti-competitive effects, and these were adjudged\nto be minor, were clearly outweighed by the public interest factors. These\npublic interest factors were that depositors would not lose money, that\nbusiness could be continued as normal, and that a severe adverse impact to\nthe economy resulting from the closure of a large bank could be avoided.\nCHAIRMAN BURNS\nExc.Sign\nAGENDA ITEM #\nOCT 17 1973\n(DATE)\nFOR INFORMATION PRIOR TO CONSIDERATION\nAT A BOARD MEETING\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate October 17, 1973\nTo\nBoard of Governors\nSubject: Proposed acquisition of assets\nLegal Division snt\nand assumption of liabilities of United\nFrom\nStates National Bank (USN) San Diego.\n(B. B. Tuttle)\nCalifornia, by Union Bank, Los Angeles.\nStrictly Confidential (FR)\nAttached is a draft Order to be carried by a representative\nof the Board if the Board wishes to approve the proposed transaction.\ncc: Mr. Feldberg\nMr. Melnicoff\nMr. Leavitt\nDRAFT\nFEDERAL RESERVE SYSTEM\nUNION BANK\nOrder Approving Acquisition of Assets\nUnion Bank, Los Angeles, California, a member State bank\nof the Federal Reserve System, has applied, pursuant to the Bank\nMerger Act (12 U.S.C. 1828(c)), for the Board's prior approval to\nacquire certain assets and assume certain liabilities of United\nStates National Bank, San Diego, California ($873 million in deposits),\nand, as an incident thereto, to operate the present 62 offices of\nUnited States National Bank as branch offices.\nPublished notice of the proposed acquisition of assets\nand assumption of liabilities and requests for reports on the competitive\nfactors involved therein have been dispensed with as authorized by\nthe Bank Merger Act.\nThe Board has considered all relevant material contained\nin the record in the light of the factors set forth in the Act,\nincluding the effect of the proposal on competition, the financial\nand managerial resources and prospects of the banks involved, and\nthe convenience and needs of the communities to be served and finds\nthat:\nOn the basis of the information before the Board, including\ninformation from the Comptroller of the Currency, the Board finds\nthat an emergency situation exists so as to require that the Board act\nimmediately pursuant to the provisions of the Bank Merger Act in order\nto safeguard depositors of United States National Bank.\n-2-\nSuch anticompetitive effects as will be attributable to\nconsummation of the transaction will be clearly outweighed in the public\ninterest by considerations relating to and involved in the emergency\nsituation found to exist. From the record in the case, it is the\nBoard's judgment that any disposition of the application other than\napproval would be inconsistent with the best interests of the depositors\nof United States National Bank, and the Board concludes that the proposed\ntransaction should be approved on a basis that would not delay consum-\nmation of the proposal.\nIt is hereby ordered, On the basis of the record, that the\napplication be and hereby is approved and that the acquisition of\nassets and assumption of liabilities and the establishment of the branch\noffices may be consummated immediately but in no event later than\nthree months after the date of this Order unless such period is\nextended for good cause by the Board, or by the Federal Reserve Bank\nof San Francisco pursuant to delegated authority.\nBy order of the Board of Governors effective October 19,\n1973.\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate October 17, 1973\nTo\nBoard of Governors\nSubject: Proposed acquisition of assets\nand assumption of liabilities of United\nFrom\nLegal Division\nStates National Bank (USN), San Diego,\n(B. B. Tuttle)\nCalifornia, by Union Bank, Los Angeles.\nStrictly Confidential (FR)\nAttached is a draft Order to be carried by a representative\nof the Board if the Board wishes to approve the proposed transaction.\ncc: Mr. Feldberg\nMr. Melnicoff\nMr. Leavitt\nDRAFT\nFEDERAL RESERVE SYSTEM\nUNION BANK\nOrder Approving Acquisition of Assets\nUnion Bank, Los Angeles, California, a member State bank\nof the Federal Reserve System, has applied, pursuant to the Bank\nMerger Act (12 U.S.C. 1828(c)), for the Board's prior approval to\nacquire certain assets and assume certain liabilities of United\nStates National Bank, San Diego, California ($873 million in deposits),\nand, as an incident thereto, to operate the present 62 offices of\nUnited States National Bank as branch offices.\nPublished notice of the proposed acquisition of assets\nand assumption of liabilities and requests for reports on the competitive\nfactors involved therein have been dispensed with as authorized by\nthe Bank Merger Act.\nThe Board has considered all relevant material contained\nin the record in the light of the factors set forth in the Act,\nincluding the effect of the proposal on competition, the financial\nand managerial resources and prospects of the banks involved, and\nthe convenience and needs of the communities to be served and finds\nthat:\nOn the basis of the information before the Board, including\ninformation from the Comptroller of the Currency, the Board finds\nthat an emergency situation exists so as to require that the Board act\nimmediately pursuant to the provisions of the Bank Merger Act in order\nto safeguard depositors of United States National Bank.\n-2-\nSuch anticompetitive effects as will be attributable to\nconsummation of the transaction will be clearly outweighed in the public\ninterest by considerations relating to and involved in the emergency\nsituation found to exist. From the record in the case, it is the\nBoard's judgment that any disposition of the application other than\napproval would be inconsistent with the best interests of the depositors\nof United States National Bank, and the Board concludes that the proposed\ntransaction should be approved on a basis that would not delay consum-\nmation of the proposal.\nIt is hereby ordered, On the basis of the record, that the\napplication be and hereby is approved and that the acquisition of\nassets and assumption of liabilities and the establishment of the branch\noffices may be consummated immediately but in no event later than\nthree months after the date of this Order unless such period is\nextended for good cause by the Board, or by the Federal Reserve Bank\nof San Francisco pursuant to delegated authority.\nBy order of the Board of Governors effective October 19,\n1973.\nCOMMERCIAL TELEGRAM OR CABLE\nBURD OF GOVERNORS OF THE FEDE AL RESERVE SYSTEM\nBurns\nGDC 1029471\nNBX\ncharge to FEDERAL RESERVE BOARD\nRate:\nvia:\nNovember 2, 1973\nNational Westminster Bank, Ltd.\nLondon, England\nTelex number 885361\nIn response to your telegram of October 31 to Chairman Burns,\nyou are advised that the United States National Bank of San\nDiego was closed by the Comptroller of the Currency on Oct. 18\nat which time the Federal Deposit Insurance Corporation was\nappointed receiver under Section 12 U.S.C. 191. The receiver\nentered into an agreement for the purchase of certain assets\nand assumption of certain liabilities of United States National\nBank by Crocker National Bank which purchase and assumption\nwas approved by the U.S. District Court for the Southern\nDistrict of California.\npage 1 of 2\nPLEASE TYPE OR WRITE PLAINLY WITHIN INNER BORDER-DO NOT FOLD\nIf additional space is required continue in space below.\nGDC 1029471\nNBX\ncharge to FEDERAL RESERVE BOARD\nA representative or representatives of the Board of Governors\nare willing to meet with representatives from various English\nbanks. It is understood that you will contact Brenton C.\nLeavitt, a member of the Board's staff, to make arrangements\nfor the meeting.\nI trust that our prompt response to your telegram reflects also\nthe Board's concern that there be no damage caused by this\nevent to international banking relationships and especially to\nrelationships with banks in England.\nCU\nFeldberg\nFederal Reserve Board\npage 2 of 2\nPLEASE TYPE OR WRITE PLAINLY WITHIN INNER BORDER-DO NOT FOLD\n#2307\nFOR OFFICIAL BUSINESS ONLY-See Secretarial Handbook for Instructions and Rates\n116843 FEDR 01\n(\nMINESSAN LDN\n180 DVS 31/16/1973\nTELEGRAM\nEASED WIRE S: VICE\nEIVED AT WASHING TON\nTEM ION\n1973 OCT 31 PM. 3 24\n(BAIRMAN,\nDARD OF GOVERNORS,\nREDERAL RESERVE SYSTEM\nBOARD OF GOVERNORS\nWASHINUTON(OC)\nOF THE\nEDERAL RESERVE SYSTEM\n#2307\nHAVING AWAITED AND NOW HEARD THE STATEMENT OF CROCKER NATIONAL\nBANK, WE ARE GREATLY CONCERNED AT THE WAY THE MATTER OF UNITED\nDays\nbye.\nSTATES NATIONAL BANK OF SAN DIEGO HAS AND 19 BEING HANDLED.\nAS SUBSTANTIAL CREDITORS WHOSE INTERESTS APPEAR TO HAVE BEEN\nREJUDICED, WE REQUEST IMMEDIATE OFFORTUNITY TO DISCUSS\nTHIS WHOLE MATTER WITH YOU. #8 ARE ALSO CONCERNED\n4 THE POSSIBLE DAMAGE WHICH MAY BE CAUSED 38 THIS EVENT TO\nINTERNATIONAL BANKING RELATIONSHIPS AND ESPECIALLY\nTO RELATIONSHIPS WITH UNITED STATES BANKS: THIS NESSAGE 15\nEING SENT WITH THE KNOWLEDGE OF THE BANK OF ENGLAND\nw WITHOUT PREJUDICE TO LEGAL RIGHTS OF ALL CONCERNED\nSIGNED\nMIJONAL WESTMINSTER BANK LIMITED FOR\nINTERNAT IONAL WESTMINSTER BANK AND COUITS AND CO\nBARCLAYS INTERNAT TONAL BAN LIMITED\nINTERNAT IONAL COMMERCIAL BANK LIMITED LONDON\nWHOPERATIVE COMMERCIAL BANK LONDON\nWire BRANDT'S SONS AND CO LTD FOR\nMERCATOR INVESTMENT CO LTD\nSENT BY NATIONAL WESTRINSTER BANK LMITED\nOVERSEAS BRANCH s LONDON\nTELEX NUMBER 885361\n410043 FEDR UI\nMTWESBAN LDN\nPLEASE ACKNOWLEDGE RECEIPT OF THIS CABLE AND THANK YOU FOR YOUR\nCUPERAT ION\nfor IT AND TNXX\n476643 FEDR 01\nMATWESBAN DDN\nTELEGRAM\nFEDERAL RESERVE COMMUNICATIONS SYSTEM\nBOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM\nWASHINGTON\nNovember 8, 1973\nBanco Popular Espanol\nMadrid, Spain\nTelex number 22511\nIn response to your telegram of November 7 to Chairman Burns,\nyou are advised that the United States National Bank of San\nDiego was closed by the Comptroller of the Currency on Oct. 18\nat which time the Federal Deposit Insurance Corporation was\nappointed receiver under section 12 U.S.C. 191. The receiver\nentered into an agreement for the purchase of certain assets\nand assumption of certain liabilities of United States National\nBank by Crocker National Bank which purchase and assumption\nwas approved by the U.S. District Court for the Southern\nDistrict of California.\n2\nI can also inform you that claims are now being filed with\nthe Federal Deposit Insurance Corporation as receiver of the\nUnited States National Bank. If you wish to make a claim, it\nmay be filed with the Federal Deposit Insurance Corporation at\nthe United States National Bank of San Diego.\nIt is hoped this information is adequate for your needs.\nFeldberg\nFederal Reserve Board\nFORD\nBCL:bh\ncc: Governor Bucher, Messrs. O'Connell and Leavitt\nLIBRARY\nB.6.K.\n2\nFILE COPY\nI REPEAT\nBUARD OF GOVERNORS\nFEDERAL RESERVE SYSTEM\n1973NOV - -7 AM 10: 40\n+\n440643 FEDR UI\nOFFICE OF RECEIVED THE CHAIRMAN\n22511 BPEMB E 7.11.73 RE. 30505/MM\n16.30\nFROM: BANCO POPULAR ESPANOL - MADRID\nFEDERAL RESERVE SYSTEM\nOF THE\nTO: FEDERAL RESERVE BOARD - WASHINGTON\nBOARD OF GOVERNORS\n1973 NOV 7 AM 10 35\nRECEIVED AT WASHINGTON\nLEASED WIRE SERVICE\nD.C.\nTELEGRAM\nPhone\nATTN. THE CHAIRMAN\nLITRARY\nHAVING AWAITED AND NOW HEARD THE STATEMENT OF CROCKER NATIONAL\nBANK, WE ARE GREATLY CONCERNED AT THE WAY THE MATTER OF UNITED\nFCRD\nSTATES NATIONAL BANK OF SAN DIEGO HAS BEEN AND IS BEING HANDLED,\nAS SUBSTANTIAL CREDITORS WHOSE INTERESTS APPEAR TO HAVE BEEN\nPREJUDICED. WE ARE ALSO CONCERNED AT THE POSSIBLE DAMAGE WHICH\nMAY BE CAUSED BY THIS EVENT TO INTERNATIONAL BANKING RELATIONSHIPS\nAND ESPECIALLY Γo RELATIONSHIPS WITH UNITED STATES BANKS.\nTHIS MESSAGE IS BEING SENT WITH THE KNOWLEDGE OF THE BANK OF SPAIN\nAND WITHOUT PREJUDICE TO LEGAL RIGHTS OF ALL CONCERNED.\nHEASE LET US HAVE YOUR COMPLETE INFORMATION THEREON AT YOUR\nEARLIEST CONVENIENCE AND BE ALSO ADVISED THAT A REPRESENTATION OF\nOUR BANKS WOULD BE IN A POSITION TO HAVE THIS MATTER HANDLED\nDIRECTLY WITH YOU, SHOULD YOU DEEM CONVENIENT TO DO SO.\nBANCO ATLANT ICO\nBANCO POPULAR ESPANOL - MADRID (SPANEEE SPAIN)\nTELEX NR. 22511\n+\n1709 NW, D.C.\n440043 FEDR UI\nWKQQ BPEMB El\nNOV 23 1973\nMr. Leavitt (original wire)\nCC: Chairman Burns\nGovernor Bucher\nMr. O'Cennell\nLIBRARY\nWille\nA 1+1\nwestern union\nTelegram\nLLE142\nWAE248(2031) (1-035409C325003)PD 11/21/73 2028⁷³NOV21 PM 9: 20\nICS IPMWAWH WSH\n08122 WASHINGTON DC 228 11-21 713P EST\n#2437\nPMS HONORABLE ARTHUR F. BURNS CHAIRMAN\nDLR c/o\nOFFICE OF OF THE\nX\nBOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM\nRECEIVED\nWASHINGTON DC\n20t t COMST. AJE\nCHAIR\n22 AU\nAM10:\nFEDERAL RESERVE SYSTEM\nOF THE\nBOARD OF GOVERNORS\nYOUR TELEX OF NOVEMBER 20 RELATING TO CERTAIN CLAIMS AGAINST THE\nU.S. NATIONAL BANK OF SAN DIEGO IN RECEIVERSHIP HAS BEEN RECEIVED.\nAS INDICATED TO YOU AT OUR MEETING ON NOVEMBER 9 IN WASHINGTON,\nWE WOULD BE PLEASED TO RECEIVE THE DOCUMENTARY EVIDENCE\nDESCRIBED IN PARAGRAPH 4 OF YOUR TELEX AND ASSURE YOU THAT WE WILL\nREVIEW SUCH EVIDENCE AND YOUR PROOF OF CLAIM AS PROMPTLY AS\nPOSSIBLE. I WOULD ALSO REITERATE FDIC'S POSITION THAT IF IN FACT\nA PARTICULAR LETTER OF CREDIT MERELY EVIDENCED A DIRECT INTERBANK\nLOAN OR DEPOSIT IN THE NORMAL COURSE OF BUSINESS, THE PURCHASE\nSF-1201 (R5-69)\nGERALD FORD LIBRAR\nШИ\nwestern union\nTelegram\n- ICS IPMWAWSH WSH 08122/2\n1973NOV 21 PH 9:21\nAND ASSUMPTION AGREEMENT ENTERED INTO BY FDIC AND CROCKER\nCONTEMPLATES ASSUMPTION OF SUCH A LOAN OR DEPOSIT BY CROCKER\nAND A FURTHER CASH ADVANCE BY FDIC TO CROCKER.\nIT IS OBVIOUSLY IMPRACTICAL, HOWEVER, TO PROVIDE EACH CLAIMANT\nIN THE RCEIVERSHIP AN OPPORTUNITY TO SUBMIT PROOF OF CLAIM TO\nTHE CHAIRMAN PERSONALLY, ESPECIALLY WHEN SUBSEQUENT ACTION\nON THE CLAIM WILL BE TAKEN BY THE FULL FDIC BOARD OF DIRECTORS.\nI MUST ADVISE YOU, THEREFORE, TO FOLLOW THE FDIC'S NORMAL\nRECEIVERSHIP PROCEDURES BY FILING YOU DOCUMENTARY EVIDENCE AND PROOF\nOF CLAIM EITHER WITH THE LIQUIDATOR IN SAN DIEGO OR WITH MR.\nJOHN SLOCUM, CHIEF OF THE FDIC'S DIVISION OF LIQUIDATION, HERE IN\nWASHINGTON. ANY OTHER COURSE COULD BE CRITICIZED BY OTHER\nCLAIMANTS AS UNDULY FAVORING THE BANKS YOU REPRESENT.\nSF-1201 (R5-69)\nFORD\nGERALD\nLIBRARY\nthe\nwestern union\nTelegram\nICS IPMWAWSH WSH 08122/3\n1973 NOV 21 PM 9:21\nto\nFRANK WILLE CHAIRMAN FEDL DEPOSIT INS CORPORATION\nNNNN\nGERALD R FORD LIBRARY\na\n201 (R5-69)"
}