A bid by South Korea's largest bank and a group of 11 Korean trading companies to buy controlling interest in the Diplomat National Bank failed yesterday, according to the group's lawyer. Since the bank opened in 1975, other Korean interests have controlled it.
The collapse of the deal, which hinged on a drastically speeded-up review and approval by federal bank examiners, apparently throws control of the bank to D.C. financier Leo M. Bernstein, currently vice chairman of National Savings & Trust Co.
Bernstein could not be reached for comment. But sources close to the negotiations said that Bernstein's $2 million bid for the bank's stock offering was the agreed upon backup to that of the Koreans if the latter's bid was not accepted.
Bernstein's bid was said by those involved in the negotiations to be favored by the U.S. Comptroller of the Currency, which must approve owernership changes involving national banks.
Members of Diplomat's board of directors had expressed a strong preference for the Korean investors.
A source familiar with Bernstein's plans for the bank said that he would retain some of the bank's Korean directors.
Diplomat was chartered in 1975 to help serve the growing Asian-American population in the Washington area. But since it opened its doors, the bank has lost money and been wracked by controversy over secret attempts to control it by agents of the South Korean government.
Most recently, the bank had been under orders from the comptroller either to raise $1 million in new capital or face dissolution or forced merger with a stronger bank.
Earlier this morning, bank officials announced that they had 10 firm offers to buy 500,000 shares of Diplomat stock to raise the $1 million.
In a meeting last week, however, Diplomat's directors rejected Bernstein's $2 million bid for the stock in favor of a $1 million offer by the Cho Heung Bank Ltd. and 11 Korean trading companies.
Sources familiar with the transaction said, however, that all parties were skeptical from the beginning that the Korean bankers and their partners would be able to close the deal by a deadline of 5 p.m. yesterday. The reason: the bank was under pressure to immediately raise the capital and the Cho Heung Bank faced what could be a 60-day mandatory review by bank examiners before ownership could change hands.
The competing parties agreed, therefore, that if Cho Heung and its partners could not win federal approval by yesterday's deadline, they would drop out of the competition and Bernstein's backup bid would be accepted.
Raymond Sczudlo, a Washington lawyer retained last week by Cho Heung to press for an accelerated review and approval by federal bank examiners, said yesterday that, "Cho Heung Bank did not get approval by the 5 o'clock deadline." He said he could not comment beyond his own client's circumstances.
Spokesman for the bank and for Bernstein were not available for comment last night. But one source in the comproller's office said that it was a foregone conclusion throughout the day yesterday that Bernstein would win control of the bank.
A source close to Bernstein said he would resign his vice chairman's position at National Savings & Trust, the city's fifth largest commerical bank, and his seat on its board of directors, should he take over Diplomat. Last month, Bernstein sold his 15 percent interest in NS&T.