Financial General Bankshares Chairman B.G. Saul II is caught in a conflict of interest because companies he controls have "substandard" loans from the banks he heads, Saul's opponents in the struggle for control of the company claim in court documents.

Saul's companies, including B.F. Saul Real Estate Investment Trust, "have received substantial laons from Financial General affiliates," contend the lawyers representing Bert Lance and others accused of trying to take over Financial General.

They say that some loans to Saul companies "have been rated substandard by the Office of the Comptroller of the Currency and/or other federal regulatory authorities.

"Saul's interest as chairman of the Board of Financial General is in clear conflict with his interest as a borrower from Financial General," argue the lawyers for Saul's opponents.


The issue of Saul's borrowings from Financial General's banks in the Washington area is raised in papers filed in response to Financial General's lawsuit against Lance, four Arab investors and others involved with them in purchases of Financial General Stock.

In other documents made public yesterday Lance acnkowledges he has "borrowed substantial amounts" from some of his associates in the purchase of Financial General shares.

Lance revealed the loans and what is described as "substantial compensation" in a report to the Securities and Exchange Commission on the purchase of $13,000 shares of Financial General Stock in the name of his wife, LaBelle.

Lance, whose personal borrowings were a central issue in the investigation which lead him to resign as Director of the Office of Management and Budget, does not disclose the size of his borrowings.

In his report to the SEC Lance said his loans have made by or arranged by Bank of Credit and Commerce International (BCCI) a London financial institution that has acted as investment agent for the four Middle Eastern buyers who have accumulated almost 20 percent of the stock of Financial General.

In compliance with an agreement with the SEC that was reached Saturday, reports on the purchases of Financial General stock were filed by Lance, BCCI, BCCI President Aga Hassan Abedi, and the four Arab buyers.

The buyers also have agreed to make a public tender offer for controlling shares of Financial General within two years or to sell their shares in the $2.2 billion bank holding company.

That settlement ended an SEC investigation of the purchases of Financial General stock, but the company's lawsuit against the purchasers still is pending in U.S. District Court here. A hearing is scheduled tomorrow on the company's request for a temporary injunction blocking efforts to control the company.