A thorough shakeup in the management at diplomat National Bank of Washington, described by federal officials as an institution once controlled by South Korean government agents and evangelist Sun Myung Moon, has been accomplished in recent months.
Apparently acting in response to not-so-subtle suggestions from bank regulators-chiefly the comptroller of the Currency's office-Diplomat's directors have brought in an experienced banker from the Maryland suburbs to take over as president and chief executive officer.
Thomas J. Leonard iii, who was president of the young Century National bank in maryland (where deposits soared from $6 million two years ago to $22 million in recent months), is the man Deplomat's directors have hired with the comptroller's mandate to clean house and keep the bank solvent.
In addition, other senior officers were brought in from banks in Washington and South Carolina, and the board of directors has been expanded and restructured.
Ownership of Diplomat remains a mystery, however. Leonard said in an interview that there "are no facts to show any relation" to Moon or his Unification Church or to Park at this time. The bank has about 500 stockholders and no one individual owns more than 5 percent, he added.
But a proxy statement for Diplomat's annual meeting last June 30, which had been delayed by recent controversies and government concern about the bank's survival, only adds to the mystery. It states: "Management of the bank, as well as its board of directors, are cognizant of the allegations made by the Securities and Exchange Commission, which were not denied, to the effect that two individuals, through nominees, acquired 43 percent and over 10 percent, respectively, of the bank's outstanding capital stock.
"The bank's present management and board of directors do not know whether the allegations are true....such individuals are required to refrain from directly or indirectly exercising voting rights or soliciting proxies in connection with the bank's stock. By letter dated Jan. 10, 1978, the SEC has advised the bank that the SEC does not believe it appropriate to release to the bank the names of individuals believed by the SEC to be nominees of the foregoing two individual defendants."
However the bank noted, the SEC also has said that, should these two persons act to vote their stock, the bank could be exposed to liability. Apparently, this potential liability and the mysterious ownership continue today.
But Leonard vowed that, with a "clean slate," a batch of new directors and all previous litigation settled, Diplomat should become profitable next year for the first time, and total assets of about $10 million now should be boosted to $17 million or more by the end of next year, benefitting from an aggressive new program of attracting business from the broad Washington community.
As part of a drive to attract new customers, Diplomat on Jan. 1 will eliminate service charges and require no minumum balances for all personal checking accounts. The no-charge accounts come at a time when the banking industry generally has been moving to increase service fees.
Diplomat was opened late in 1975, one of several new commercial banks here in the 1970s that vowed to cater to special inferests of particular segments of the population-in Diplomat's case, the Asian-american community, which since has swelled with the arrival fo Vietnamese immigrants.
Largely because of language problems, many Asians shied away from Washington's other commercial banks, Diplomat's initial president, former American Security Bank officer Paul E. Bramell, said at the time. The bank's original directors and owners included syndicated columnist Jack Anderson and karate school entrepreneur Jhoon Rhee.
Deposits of the bank grew quickly, but within a year federal probes of alleged Korean corruption of U.S. congressmen led some investigators to the new bank. They charged that businessman Tongsun Park. The SEC later alleged that two unnamed individuals had controlled 53 percent of Diplomat's stock.
In the two years that have followed, controversy has swirled around the bank, and there have been allegations of poor lending practices and bad loans. Anderson, who at one point became chairman of the bank's executive committee to help restore confidence in the institution, attacked congressional investigations of the bank's ownership but subsequently resigned and sold his stock to remove any (See DIPLOMAT, H2, Col.2) (DIPLOMAT, From H1) appearance of conflict of interest between business and his work as a journalist, he said.
Last year, the initial chairman, Charles Kim, resigned after Diplomat's board split on whether he should continue after allegations that he had been aware of Park's interest in the institution. But he remained as a consultant until earlier this year.
Another founding director, Rhee, also had resigned before testifying to a grand jury that was investigating Park. A group of Vietnamese tried to buy a substantial bloc of shares but lost interest when Kim could not answer some of their questions, bank sources said.
And the SEC charged one year ago that Kim had aided a secret takeover attempt by South Korean interests. The banks settled the SEC complaint without admitting or denying allegations and agreed to take certain steps mandated by a consent agreement. The 41-year-old president, Brammel, left in September. Leonard begain his career at Diplomat on Oct. 2.
After the waves of bad publicity that surrounded many of these developments, it will come as no surprise that Diplomat has been unprofitable. The bank operated in 1977 with a net loss of $224,140, a substantial increase over the $164,361 loss in 1976, the first full year in business. Nearly $70,000 was spent in 1977 simply to cope with all the federal probes. Deposits totaled $9.7 million at the end of the year, a significant portion of which since has been withdrawn Sept. 30 deposits were about $7 million).
Today, Leonard heads an institution whose greatest asset may be the location of its headquarters and only office: at 21st and K Sts. NW, a choice site in the city's fast-growing new trade association and office building center that has been marching down K Street toward Washington Circle from Connecticut Avenue.
From there, Diplomat can serve the Asian-American population and the Washington business community, Leonard said. He grew up in Arlington and was a banker in Northern Virginia for 10 years before taking over at Century Bank in 1976. Leonard said the "problems of the past, adverse publicity surrounding 'Koreagate,' are what we have to overcome."
To help meet the callenge, Leonard brought in Joseph Muse iii from McLachlen National Bank as vice president and loan administrator. Muse has a reputation in the local banking community as an extremely competent loan officer, one who helped his previous bank overcome some problems with bad loans.
In addition, Diplomat went to South Carolina and hired away from Citizens & Southern its new vice president for the key day-to-day bank management poisiton-Yong Sik Choe, vice president for operations. Young Y. Lee, a former Diplomat vice president who had been acting president for several months last summer, remains as the only top officer from the former bank team, as vice president of rmarketing.
The current chairman of the board of directors is Harry J. Zink, 60, former managing director of the National Transportation Safety Board and managing director of the Civil Aeronautics Board and a retired Air Force officer. Zink was among directors who sided with former chairman Kim in the wake of the SEC charges a year ago.*tWhen Kim was ordered by then-chairman William Chin-Lee to move an office out of the bank inthe wake of the SEC settlement, Zink and two other directors protested that Kim "has a reassuring effect on depositors" and that his ouster could precipitate a run a deposits.
Zink and the two others who sided with Kim-Soo Young Oh and Magin T. Quiambao, both physicians-remain on the "clean slate" board of directors. In addition, two directors proposed as favorable to Kim last December by Zink and his associates have joined the board: Philip D. Grub, professor of international business at George Washington University, who said he was asked by Kim to be a director, and Diosdado Yap, president of Capital Publishers, who said last year that he was surprised to be described as favorable to Kim and that "I'll see what is what. If I smell a rat, I have no interest in this matter."
On the 12-member board also are bank officers Leonard and Young Lee, as well as Jhoon Rhee, a disciple of Moon's church who denied any involvement in alleged South Korean bribery and said he had been unjustly hurt by the Korean scandal. Rhee said in an interview that he had resigned because of the conflict "to help the bank" but that he rejoined because "they called me and asked if I could help."
Today, said Rhee, the bank atmosphere is one where "everyone is owrking very hard...the previous management ruined it, the new team is doing a lot better, I'm very pleased with Leonard, he's really progressing rapidly."
Other board members include Joseph L. Gibson, a newcomer and Washington lawyer; Kenneth Manning, head of a transportation analysis firm that bears his name and another newcomer; and physician Charles C. Yu, a holdover from the previous board.
According to Leonard, his bank's "casual atmosphere" and the multi-language fluency of his staff are key ingredients he will use in trying to build a new mix of consumer and commercial accounts in a business he said often is dominated by marble offices that tend to scare away some consumer. "In the long run, we want to grow with the Washington business community and we will try to extend our penetration of the lwyers, accountants and trade association offices," Leonard said.
He added that "there are many areas" Diplomat loan officers "haven't touched" in the past and stated that "we've pretty well worked through the problem loans." Diplomat is establishing what Leonard described as an "aggressive officer call program" inwhich loan officers will hit the streets and act as salesmen, seeking business.
Leonard ruled out a merger with another institution, saying that no direct offers for a purchase have been made and that the directors "are committed to staying independent...we are appealing to a lot of different interests in town, and the chances for profit and success are a lot greater than for the typical minority-bank situation."
Within the next two years, Diplomat will have automatic money machines and perhaps some remote teller facilities in nonbranch locations such as office buildings, retail outlets or apartment houses, he said. He ruled out many branches because of the costs involved however.
A machine teller in the Chinatown section ofD.C., for example, is being considered. It would cost $50,000 or less to install a remote money teller there compared with some $250,000 for a full branch because personnel costs are minimal.