A group of major banks, acting with the approval of federal regulators, has agreed to lend the billionaire Hunt brothers of Texas up to $800 million to pay their speculating debts.
The loan was arranged at a meeting of the nation's biggest banks in Boca Raton, Fla., on March 29, only two days after the collapse of the silver market.
Banking officials approved the massive loan even though it violated Carter administration polices aimed at fighting inflation.
For months, the administration had been telling banks not to make loans for speculative purposes. But a regulator said yesterday that without the loans, a number of brokerage firms dealing with the Hunts might have failed, triggering a financial panic.
The loan was arranged through a group of banks led by First National Bank in Dallas, the Hunts' main bank for many years.
It was not clear how many banks participated in the loan to the Hunt brothers, nor what interest rate they were forced to pay. When the loan was negotiated in late March, the prime lending rate at most banks was 19 1/2 percent.
The Hunts have used $300 million of the $800 million line of credit so far, the Los Angeles Times reported.
Nelson Bunker Hunt flew to the bankers' meeting from Paris after the Hunts were unable to raise money in Europe to pay their silver debts by selling bonds backed by their silver hoard. He and his brother, W. Herbert Hunt, have been on a silver-buying spree since 1973.
The meeting of the Reserve Bankers Association, which includes nearly every important bank in the country, also was attended by top federal bank regulators, including Federal Reserve Board Chairman Paul A. Volcker and Comptroller of the Currency John G. Heimann.
Both Volcker and Heinmann approved the loan, which was secured by the Hunts' oil holdings.
The Fed on March 14 had warned banks to stop making loans to finance speculative ventures, such as the Hunts' silver trading.
But regulators agreed with the banks, sources said, that the loans to the Hunts were necessary to prevent failure of brokerage houses that had big accounts with the billionaire brothers.
Bache Group Inc., one fo the nation's biggest brokers, on March 25 ordered the Hunts to pay $100 million to cover their losses on silver speculation. The Hunts said they did not have enough cash to pay the debt, and Bache then began selling the silver the Hunts had put up as collateral.
The Hunts since have paid most of their debts to Bache.
A number of other important brokerage frims also were threatened by the Hunts' inability to raise cash -- despite their great wealth -- including Merrill Lynch, Pierce, Fenner & Smith, the nation's biggest broker; ACLI International Inc., owned by A.C. Israel, chairman of Peoples Drug Stores of Washington; Paine Webber, Inc., and A.G. Edwards & Sons.
To get the loans to pay off their silver speculating debts, the Hunts were forced to pledge much of their vast oil empire.
They also were forced to turn over oil and gas wells in Canada's Beaufort Sea to Englehard Mineral & Chemicals Co. to extract themselves from another silver deal they entered into last January. Yesterday a Canadian court froze the transfer of the Beaufort Sea properties to Engelhard because of claims against the Hunts, assets by a subsidiary of British Petroleum. [Story, Page B2].
The Hunts' problems began last January after the two major silver markets -- the Chicago Board of Trade and the Commodity Exchange, Inc., of New York -- took steps to halt speculation in silver futures.
Because the Hunts, and several major Middle East investors, amassed a huge position in silver and were joined by thousands of smaller speculators, the exchanges, under government prodding, took steps to halt the surge in the silver speculation.
The price of silver had risen from about $6 an ounce in late 1978 to nearly $50 an ounce in January.
After the exchanges took steps to halt the speculation, the price of silver began to fall, bottoming out at $10.80 an ounce on March 27. Lately the metal has sold for about $14 an ounce.
The steep decline in prices forced the Hunts to come up with hundreds of millions of dollars to pay their silver speculation obligations.
Under commodity trading rules, investors put up a small down payment to buy a contract for future delivery of 5,000 ounces of silver.
At one point, the Hunts signed more than 12,000 contracts to buy silver at prices of up to $30 an ounce. When the price plummeted to $10.80 an ounce, the Hunts stood to lose hundreds of millions of dollars on the deal.
Their only choice was to sell silver for much less than it cost them, or pay the difference in cash. The loan package approved by federal officials enabled the Hunts to come up with the cash.
Forcing the Hunts to turn over their silver might have flooded the market with the metal, forcing prices even lower and making the problem worse, federal regulators said.