The Federal Reserve Board ruled yesterday that a major Washington financial company intentionally broke the law for 11 years by refusing to give up control of Financial General Bankshares, Inc., and by camouflaging its control "through essentially meaningless changes in corporate form."
In a unanimous ruling, the Federal Reserve said that International Bank's sale of its holdings of Financial General last spring was a major step toward ending its control of the bank holding company but did not go far enough.
Because International Bank's "conduct over the past 11 years evidences a clear and determined intention to evade" the bank holding act of 1966, "sterner" measures, beyond divestiture of the stock, is required, the Fed said.
The Fed rejected the company's contention that the sale of 1.2 million shares in the banking firm (22.2 per cent of the outstanding stock) to a group headed by former Navy Secretary J. William Middendorf II "moots" the three-year-old Fed preceeding against International Bank.
At isue for the 11 years is whether International Bank - which is not a bank but a diversified financial company - had to register as a bank holding company. Bank holding companies are regulated by the Federal Reserve and are restricted in the activities in which they may engage.
Under the 1966 ammendments to the Bank Holding Company Act, Congress said that any company that controls a bank holding company is itself a bankholding company and therefore is subject to Federal Reserve regulations.
A bank holding company is a corporation that controls one or more banks.
Financial General now controls 15 banks - it has owned more at times. Since 1966 it has been registered as a bank holding company.
Meanwhile, International Bank, through a series of complicated maneuvers, reduced its outright holdings of Financial General from 32 per cent to about 24 per cent. It claimed that it no longer controlled Financial General, calling its holding merely an "investment."
When the Fed brought proceedings against International in 1974, the agency noted that the two companies shared the same chairman, George Olmstead, the same address and teh same telephone number. Many members of the Financial General Board also were members of Internationawl Bank's board.
The Federal Reserve Board yesterday ruled that International Bank had concealed from the public its "dominated " of Financial General and, while pretending that it's Financial General holdings were merely an investment, d" succeeded for more than a decade in retaining unfied control of a banking and industrial empire of a banking and industrial empire that Congress decreed in 1966 should be split up."
Because of International Bank's long-standing flouting of the law, the Fed ordered additional measures to insure the relationship is "completely terminated" and to "prevent reestablishment of such a relationship." These measures include:
Requiring International Bank and its subsidiary Financial International Corp. to get rid of all of the remaining Financial General stock that they control directly or indirectly within 90 days.
Ordering all management interlocks between Financial General and any of the companies in which Olmsted has an interes t to be terminated by Jan. 31, 1978.
Directing the board of Financial General and each of its subsidiaries to adopt resolutions within 45 days affirming that International Bank does not now control, nor will it ever be permitted to control, any of the companies in question.