A group of investors led by former D.C. banker John J. Mason and financier Wafic Said has offered to bail out the financially troubled Washington Bancorporation in exchange for a "major stock interest" in the company, Chairman John M. Toups announced yesterday.
The deal, which has not been finalized and is subject to regulatory approval, would provide the parent firm of the National Bank of Washington with $45 million to pay off its creditors and would provide it with "a solid capital base for the future," Toups said.
Three weeks ago, Washington Bancorporation (WBC) defaulted on more than $25 million in commercial paper, or corporate debt. Toups has been negotiating with Mason and other investors ever since to find a way to solve the company's cash crunch. Mason already owns 6 percent of WBC, while Said, an investor in several area companies, owns 27 percent.
Sources close to the bank said Toups has agreements from investors to provide about half of the expected $45 million capital infusion. The amount of stock to be issued in return for the funds has not yet been decided, Toups said. The $45 million investment would be secured by substantially all of WBC's assets. Even after raising the $45 million, however, WBC will need an injection of millions of dollars to put the bank on a competitive footing, the chairman said.
The financing deal is expected to be completed in a matter of weeks. Toups said WBC intends to pay off all of its commercial paper holders immediately, including the interest they are owed. According to sources close to the talks, Mason and Said would provide about one-quarter of the money and would receive a "substantial" stake in WBC.
It's not yet clear how much of the company Mason and Said would own under the agreement, but Toups said that, combined, the two still would not control more than 50 percent of the company. Said would remain WBC's principal shareholder.
Toups said he doesn't know whether Mason, who had been chairman of National Savings & Trust Bank, now Crestar Financial Corp., will join the management of WBC. Mason could not be reached for comment, but in filings with the Securities and Exchange Commission he has suggested everything from becoming a director to playing an even greater role in WBC's future.
Mason only recently emerged in the struggle for control of the bank, following disclosure of his purchase of thousands of WBC shares, for which he paid far more than the stock is worth today.
"Mason has been very helpful to me in bringing this problem this far," Toups said. "Whether he's going to be part of management is a question for the future. "
The other investors in the deal were identified only as "prominent members of the local business community." Toups said that in the end, as many as 20 people could be involved. Local attorney Robert B. Washington Jr., who has been negotiating to buy the bank for the past year, is not now part of the investment team, according to sources.
Toups said that once the company's cash problems are resolved, WBC's management will be able to focus on "getting back to basic banking." In April, WBC announced a plan to eliminate all of its businesses that are not directly related to banking, such as its mortgage subsidiary and its venture capital company.
"The liquidity problem of WBC has consumed all of us for the last three weeks," Toups said. "That event has really deterred us from carrying out the strategic plan -- to get rid of other assets and wind up with a basic banking business."
He said the next priority will be to resolve problems in NBW's loan portfolio, which suffered major losses last quarter in its real estate related loans.