A Michigan bank has seized $900,000 belonging to the Chrysler Corp. to cover part of a defaulted loan, an action that could complicate wrapping up details of a $1.5 billion federal loan guarantee package this week, it was reported yesterday.
Michigan National Corp., a bank holding company, seized the $900,000 May 9 after the nearly bankrupt automaker defaulted on a $1 million loan made by one of Michigan National's bank subsidiaries.
A spokesman for the federal loan Guarantee Board termed the seizure "one of many small problems" still to be resolved before the loan guarantee paperwork can be completed. "It comes as no surprise to us," he said.
Chrysler spokesman Wendell Larsen confirmed that the bank had seized the money, but said the situation with Michigan National "is no more or less critical than that of three or four other banks around the country."
All of the 400 or so banks that have loaned Chrysler money must approve the terms of the loan guarantee, which would give the federal government first claim on virtually all of the corporation's assets if it can't repay the $1.5 billion.
Phil Essing, Michigan National's vice president for development, said Chrysler still owes the holding company's various bank subsidiaries about $16 million, adding that Michigan National has signed the loan guarantee agreement.
"We don't want Chrysler to fail any more than anybody else does," Essing said.
However, most other banks with loans on which Chrysler has defaulted have not seized the automaker's assets in paritial payment. A bank in West Germany took over $8 million under similar circumstancs last week.
The guarantee board's spokesman said, "It is kind of strange for a Michigan bank to do that sort of thing. After all, it's their industry."
Essing, interviewed by the Detroit Free Press, said the $16 million his corporation still has outstanding in loans to Chrysler may represent, considering the size of Michigan National, the most exposure to loss of any bank.
Faced with a new cash crisis, Chrysler last week was forced to suspend payments to its 19,000 suppliers until it gets the first $500 million in loan guarantees. If the guarantees are not available by the end of June, the corporation probably would be pushed into bankruptcy, officials have said.
At the end of May, about 20 banks were still refusing to sign the loan guarantee agreement, but by last week that number had dropped to about half a dozen. Whether Michigan National should still be counted among them was unclear because of the seizure of the $900,000.
Up until last week, the bank holding company had opposed the entire plan, which permits Chrysler to delay or waive $642 million in payments of interest and principal between now and 1985.