A Middle Eastern-controlled corporation that holds majority interest in Washington-based Financial General Bankshares Inc. has initiated final steps to convert Financial General into a privately held subsidiary.

FGB Holding Corp., which owns 96 percent of Financial General, has proposed a merger in which the remaining common stock of the local bank holding company will be converted, giving each minority shareholder the right to receive $33.80 in cash for each share.

The proposal, which has been approved by Financial General's directors, would also give holders of the company's Class A stock the right to convert each of their shares into $28 in cash.

FGB acquired control of Financial General in April in a cash tender offer for all outstanding common shares at $33.80 each, giving it 6.4 million of the 6.7 million common shares outstanding. The tender offer did not include the Class A stock.

FGB is a Virginia corporation and a wholly owned subsidiary of Credit and Commerce American Investment B.V., a Netherlands corporation wholly owned by Credit and Commerce American Holdings N.V., a Netherlands Antilles corporation. Financial General Bankshares is the holding company for the First American banks of the District, Maryland and Virginia.

Middle Eastern investors began buying stock in Financial General in 1977, but the bank holding company instituted legal action that blocked a takeover attempt for more than four years.

The transaction being proposed by FGB now would be a statutory merger, which permits a company to acquire minority shares after it takes control of a company. Under the statutory merger, FGB would establish a wholly owned subsidiary that would be merged into Financial General.

The statutory merger would also permit the company to operate as a privately held corporation.

However, the conversion of Financial General's Class A common stock is subject to approval by holders of at least two-thirds of those shares. If approval of the proposal to convert the Class A stock cannot be obtained, those shares will remain outstanding after the merger, Financial General said.

However, approval is all but assured because several owners of the Class A stock have indicated a desire to convert them for cash.

Moreover, Eugene B. Casey, a Financial General director and the largest single owner of the Class A stock, has advised the company that he will vote all of his stock for the merger.

Casey, a Montgomery County builder, developer and farmer, owns 180,852 of the 592,569 Class A shares. He would receive more than $5 million if the proposal receives the backing of two-thirds of the shareholders.

Although it was advised by First Boston Corp. that $28 a share is a fair price for the Class A shares, Casey's agreement to accept that price figured prominently in Financial General's approval of the merger proposal.

But with the stock being delisted eventually, stockholders would have little to gain by holding it. After FGB's acquisition of the remaining common stock, there would be no assurances of a continued market or liquidity for the Class A shares, Financial General pointed out.

Historic market prices of the shares also figured in its decision to approve FGB's proposal, Financial General said. The Class A shares had a book value of $21.35 on Dec. 31.

Robert A. Altman, a Washington lawyer who is a director and president of FGB, said the proposal "offers a unique and exceedingly attractive investment opportunity for Financial General's remaining public shareholders, and marks the final step in our acquisition program."

Stockholders will vote on the merger proposal at Financial General's annual meeting in late July or early August. The meeting, scheduled for June 8, was postponed to allow time for consideration of the proposal.