A major area money market fund withdrew a $400 million custodial account from National Bank of Washington yesterday, partially as a result of the controversy surrounding the bank's lending practices.
The Fund for Government Investors, a local, rapidly growing investment group that buys government bonds and other offerings, announced it had transferred the account from NBW to American Security Bank, which has the city's largest trust department.
Sources indicated, however, that one of the reasons for the decision to transfer the fund was the adverse publicity surrounding a series of federal investigations into the bank's lending practices and NBW's relationships with the United Mine Workers. The UMW is the largest single holder of NBW stock, with more than 75 percent of the bank's shares.
A federal grand jury is looking into a series of questionable loans involving members of the bank's board of directors and others, and the Securities and Exchange Commission also is looking at the bank's practices. A number of high-level NBW officials have left the bank, including Dale Jernberg, who was chairman.
But officials of both the Fund for Government Investors and the bank point out that the $400 million fund, like other so-called custodial accounts was not a part of NBW's assets, and the bank only receives a contracted fee for performing a variety of management services for custodial accounts.
The bank does not manage these custodial accounts, but handles the paperwork for members of the fund, including customer payments and other fund transfers. Nevertheless, the fund's account represents about half of the total custodial accounts at NBW.
Last year, the five-year-old, fund, which has grown quickly from $50 million two years ago to $200 million last year to more than $400 million this year, paid the bank about $38,000 for handling the transactions.
For the first six months of 1980, The Fund for Government Investors paid the bank $35,000 for its services. Thus, the bank could face the loss of at least $70,000 in revenue as a result of the fund's decision to leave NBW.
Daniel L. O'Connor, president of the fund, said the move was made because of the additional services the larger Americal Security trust department could offer. O'Connor said American Security offered more automated services, even though the cost to the fund would be about the same at both banks.