Companies controlled by B. F. Saul II have severed most of their ties with Financial General banks since Saul became chairman of Financial General Bankshares Inc. last December, sources close to the companies said yesterday.
The remaining major connection between the banks and Saul operations is expected to be eliminated later this year, when B. F. Saul Real Estate Investment Trust negotiates a new bank credit agreement.
The Saul REIT has $3.5 million in loans outstanding to three Financial General Banks as part of $108 million credit agreement with 27 banks.
When the loan agreement was negotiated last spring, reports to the Securities and Exchange Commission show, the Saul REIT owed $2,294,310 to Union First National Bank of Washington, $729,950 to Clarendon Bank and Trust, and $328,510 to Alexandria National Bank of Northern Virginia.
At the REIT's annual meeting, Saul said the firm planned to renogiate its bank credit arrangement this year, reducing the total amount of the loans and restricting borrowing to about a dozen banks.
"You can assume Financial General banks will not be among them," said a Saul source.He said the various Saul companies "cancelled all other lines of credit with Union First after he went on the board."
The potential conflict in Saul's roles as both a borrower and chairman of the banks was raised in legal proceedings in the struggle for control of Financial General.
Attorneys for Bert Lance and others involved in the purchases of Financial General stock criticized the loans, saying some of them had been rated "substandard" by federal bank regulators.
The Saul REIT spokesman acknowledged that the loans had been "classified" by the Comptroller of the Currency, but said all loans to REIT's were put in a special classification because of widespread financial troubles among REITs in the early 1970s. The Saul REIT "never was a day late" with payments on the loans to Financial General banks, he said.
A Federal Reserve attorney said there is "generally no prohibition on transactions" between a bank and companies controlled by the bank's officers and directors.
But legislation is pending in Congress which would set standards on insider loans to bank officials. The proposed federal rules grew out of the investigation of Lance's activities at National Bank of Georgia and Calboun (Ga.) First National Bank.