Virginia banking regulators yesterday recommended the Federal Reserve Board reject an application by a group of Middle Eastern investors to form a bank holding company to take over Financial General Bankshares Inc. of Washington.
Control of the Financial General banks by foreign investors would be "inimical to the convenience and needs of the community," said Sidney A. Bailey, Virginia's commissioner of financial institutions.
Because state regulators recommended against the bank holding company plan, the Federal Reserve Board is required by law to hold public hearings on the Arabs' plans for taking over the local banking company.
No date for the hearings has been set by the Federal Reserve, which is still waiting for comment on the application from state regulators in New York and Maryland.
The public hearings "could consume many, many months of time because of the numerous issues and open questions raised," by the case, said Martin Thaler, counsel to Financial General. Lawyers for the Middle Eastern group seeking control of the bank could not be reached for comment.
Any delays probably would benefit Financial General's management, which has been fighting in the courts for more than a year in hopes of blocking the Arab takeover attempt.
In the latest round of that legal battle, Financial General has accused the Arabs, former Director of the Office of Management and Budget Bert Lance and former Sen. Stuart Symington (D-Mo.) of violating securities laws in their attempt to buy control of Financial General.
Attorneys for the company made those charges in an amended complaint, which they applied to file in U.S. Djistrict Court. The new complaint was made public yesterday.
Disputing reports made to the Securities and Exchange Commission and the Federal Reserve by the Middle Eastern group, FG lawyers charge that Lance is still actively involved in the takeover fight.
The new complaint also alleges that Symington -- trustee for stock owned by two Middle Eastern investors -- has violated federal law by not reporting his involvement in the Financial General case to the SEC.
The court document charges "Lance has advised and is continuing to advise" investors seeking control of Financial General. Charging that an Arab-owned London bank, Bank of Credit and Commerce International and its president, Pakistani-financier Aga Hasan Abedi, are behind the takeover bid, the new complaint claims "BCCI, Abedi and Lance have falsely and misleadingly sought to portray an image of total noninvolvement" in acquisition of FG.
Financial General lawyers claim in the court filings that Lance was instrumental in having the Middle Eastern investors hire Kidder, Peabldy &-Co. of New York as investment bankers to aid in the takeover and also was involved in the hiring of Golembe Associates, a Washington consulting firm, to prepare bank regulatory reports.
The charges made by Financial General conflict directly with the bank holding company application filed by the Middle Eastern Group, which says Lance is no longer involved in the corporate maneuvering and will have no role in running Financial General if the takeover is successful.
The members of the Middle Eastern group seeking control of Financial General already own about 22 percent of the stock of the company, which owns a groups of banks, including Union First National Bank of Washington, American Bank of Maryland and First American Bank of Virginia.
The group plans to make a public tender offer for all the remaining stock of Financial General, but first must get Federal Reserve approval as a bank holding company.
The proposed holding company is called credit and Commerce American Holdings and is incorporated in the Netherlands Antilles, a Carribean country with tax treaties that allow foreign investors to avoid most taxes on profits of their American investments.
The bank holding company plan submitted by CCAH says that if the takeover of Financial General is successful, the new management will strengthen and centralize control by the holding company over its banks, which now operate with much autonomy.
Centralized control will "make the constituent banks stronger competitors in their respective markets and more responsive to the needs of their customers," the holding company application says.