The Cleveland banking community apparently was making a deliberate effort to unseat maverick Mayor Dennis Kucinich when it forced that city into financial default by failing to refinance $14 million in municipal notes, according to a House Banking subcommittee staff report.
The report, by the staff of the subcommittee on financial institutions supervision, regulation and insurance, suggests that "the deep animosities and political cross-currents in which some bank officers became involved," rather than "pure hard-nosed credit judgments," led to the decision to cut off the city's credit.
A copy of the report was obtained from subcommittee sources.It alleges that Cleveland Trust (the city's largest bank) led the other five local banks involved into a game of "chicken" with Kucinich and attempted to force him to sell the city's municipal lower system to the local privately owned utility before they would refinance the city's $14 million debt.
"Such a conclusion is clearly speculative," the report states, "but if this was the game, obviously the major did not swerve."
Several months ago, Kucinich alleged to the subcommittee that such political pressure was behind the banks' actions. Because they are government-chartered banks, they have a legal responsibility to make credit decisions based on financial data, not political motivations, subcommittee chairman Fernand J. St Germain (D-R.I.) said in opening remarks before last week's subcommittee hearings on Kucinich's allegations.
At those hearings, Kucinich repeated his charges that the business community, led by Cleveland Trust and its chairman, Brock Weir, tried to force the city to sell the Municipal Electric Light System to the Cleveland Electric Illuminating Co., a private utility with close ties to Cleveland Trust.
Weir denied making such a stipulation, although he has admitted publicly to disliking Kucinich intensely. The subcommittee report quotes Weir as saying "We had been kicked in the teeth for six months. On Dec. 15 [the day of the default], we decided to kick back."
Kucinich, a self-styled populist, has been an antagonist of big business. He admits he sees the "working class," rather than the city's financial interests, as his constituency, and because of that he has alienated most of the business community.
The subcommittee report includes an exhaustive study of business community interconnections, giving rise to the theory that the business community was conspiring to oust Kucinich.
The report notes that the six banks involved in the default have 179 common directorships with 40 Cleveland corporations.
"During 1978, the banks and CEI [the privately owned utility that stood to profit considerably by the sale of Muny Light] shared eight directors," the report stated.
Those same banks hold 1.8 million shares of CEI stock in their trust holdings and extend CEI $72 million in lines of credit, the report says. Cleveland Trust and one other bank also manage major CEI employe funds.
In attempting to determine the extent of the political disagreement, subcommittee staffers found that more that 50 officers and directors of four of the banks holding Cleveland municipal notes "had contributed to campaign committees set up to recall the mayor."
The staff also cited the Capital National Bank (CNB) as an example of questionable financial decision-making. CNB, which failed to refinance a $500,000 Cleveland city note last Dec. 15, is owned by a holding company called the Banc Ohio Corp.
In April 1979, the subcommittee pointed out, "BancOhio was forced to reveal in its proxy statement that one of its subsidiary banks - unidentified - had allowed overdrafts to reach $523,840 to a company headed by one of its directors during 1978."
"A substantial question can be raised about the relative merits of rolling over $500,000 in notes to the City of Cleveland or extending credit through overdrafts to a company controlled by a bank insider," the report stated.
Cleveland has been in technical default since last Dec. 15 and has been forced to operate on a cash basis since that time because it has been unable to borrow money in its financial state.