The major banks that are putting together the $800 million line of credit for the billionaire Hunt brothers to prevent a financial panic have yet to pay out any money, banking sources said yesterday.
Bankers said the credit line is needed to enable the Hunts to sell off assets in an "orderly" fashion to pay their silver speculating debts. Otherwise, banking sources said, the Hunts would have been forced to dump huge amounts of silver, stocks and oil wells, further depressing prices.
The bankers feared a "potential financial turmoil, a distress situation in the marketplace" that might hurt thousands of investors who had nothing to do with the Hunts or silver speculation, one lender said.
Bankers are negotiating the line of credit with the Hunt brothers -- Nelson Bunker and W. Herbert -- with the knowledge of Federal Reserve Board chairman Paul a. Volcker, but not at his urging, banking sources said yesterday.
Disclosure that the loan was made with at least the acquiescense of Volcker brought protests from Capitol Hill.
"This will be hard to explain to the farmers, the home builders, the small business people who can't get credit," complained Sen. Donald Steward (D-Ala.). Stewart heads a subcommittee that has called Federal Reserve officals and the Hunts to testify next week about the silver dealings.
Sen. John Culver (D-Iowa) said he will use the issue to try to try to block confirmation of Lyle Gramley to the Federal Reserve Board. Gramley, a member of the Council of Economic Advisors, comes up for confirmation Wednesday in the Senate Banking Committee.
Rep. Henry Reuss (D-Wisc.) sent a telegram to Volcker complaining that the effort to fight inflation by stopping banks from making speculative loans "has been seriously compromised" by the loan to the Hunts.
"It's a Chrysler bailout without Chrysler and without Congress'" approval, said Rep. Benjamin S. Rosenthal (D-N.Y.) head of another subcommittee holding silver hearings next week.
The Federal Reserve, in a statement yesterday, said that while the Fed has been kept informed, it "has not approved any such loans."
The line of credit is secured by the Hunt's vast oil empire, sources said. Many of the banks involved in the line do not normally do business with the Hunt brothers and have turned down their business in the past, banking sources said.
According to a Los Angeles Times report, quoted in The Washington Post Thursday, $300 million of the money had already been used by the Hunts. Bankers familiar with the transaction said yesterday that the report is in error and that bankers have not released a single dollar to the Hunts under the $800 million credit line.
"In fact, we called their (the Hunts) bluff in Boca Raton (Fla.) last month," said one banker. At a meeting with major banks, he said, the Hunts and Englehard Minerals & Chemicals Co., told the financiers that the Hunts needed cash immediately so they could make good on a $665 million silver contract with Englehard.
"We told them to work it out themselves," he said. Several days later Engelhard and the Hunts announced that the company would accept 8.5 million ounces of Hunt silver as well as oil properties the brothers owned in Canada rather than force the brothers to buy more than 19 million ounces of silver from Englehard as they had contracted to do.
The Hunts made the contract in January to buy the silver at $35 an ounce in early April. By early April the price was about $14 an ounce and the Hunts stood to lose $400 million on the deal.
Wednesday, however a Canadian court blocked the transfer of the oil properties to Engelhard because of claims against the Hunts by a subsidiary of British Petroleum.
"That certainly raises the spectre that Englehard might demand cash from the Hunts," said a major banker.
But $400 million would not have been a problem for the Hunts had not the silver futures markets collapsed between late January and late March, forcing the brothers to pay off hundreds of millions of dollars to brokers to keep current their futures contracts. Those payoffs left the Hunts asset-righ but cash-poor.
The inability of the Hunts to meet their debts pushed several large brokers -- including the Bache Group, Inc. -- to the brink of bankruptcy.
The sum total of the Hunts debts is not known, although one major banker said that the $800 million credit line is a close approximation of what the Hunts might need if 11 developments go against them.