Five Tennessee banks that had been part of the once high-flying financial empire of brothers C. H. and Jake Butcher were closed yesterday and sold to other Tennessee banks, the Federal Deposit Insurance Corp. announced.
The flagship of Jake Butcher's banking system, United American Bank of Knoxville, failed last February. Regulators said United American's failure was the result of unsafe lending practices by the bank and FDIC Chairman William Isaac said that the banks that were closed yesterday also were saddled with tens of millions of dollars of bad loans.
Isaac said that there is "some evidence" of criminal violations both at United American and among the banks that failed yesterday and that "referrals" were made to the Justice Department.
Jake and C.H. Butcher had built separate, but closely related bank empires that together controlled about 30 banks in Tennessee and Kentucky. Isaac said that yesterday's failures represent the end of most of the ripple effects of United American's bankruptcy.
Isaac said all five banks will re-open for business Tuesday and that none of the depositors--insured or uninsured--will lose any money.
The FDIC, however, could lose close to $100 million. The federal regulatory agency was named receiver for the failed banks after Tennessee authorities declared them insolvent about 3 p.m. yesterday. Isaac said the FDIC kept about $450 million of the banks' assets--mostly commercial loans--and many of them are uncollectible.
Some FDIC losses will be offset by $22.4 million the agency received from the three Tennessee bank companies that bought the failed banks. Sources said shareholders in the banks are likely to lose their entire investment.
At the time of their failure, the banks had combined assets--loans, investments and property--of about $743 million and deposits of $660 million. The banks had been kept alive for weeks by cash advances from the the government as C. H. Butcher and others tried to find new capital to keep the institutions afloat.
Tennessee banking commissioner W.C. Adams had given Butcher until 3 p.m. yesterday to find new funds or buyers for the bank. But C.H. Butcher apparently failed to convince Adams to give him another 30 days to raise $14.8 million in new capital for the bank, which had assets of $242 million on March 31.
The Knox County bank was bought by Tennessee's Third National Corp. for $5.5 million. Third National also bought the C&C Bank of Anderson County for $4.1 million. The C&C Bank of Roane County was purchased by the Bank of Oak Ridge for $1.3 million.
United American Bank in Chatanooga had been controlled by Jake Butcher, a flamboyant politician who was the guiding light behind the Knoxville World's Fair, until last month when his two bank lenders foreclosed on an $8 million loan he used to buy interest in the bank. Union Planters Corp. of Memphis paid $5 million for the Chatanooga bank and $6.5 million for United Southern of Nashville, which C.H. Butcher once controlled.