Key officials of the National Bank of Washington in recent years have routinely used the city's third largest bank to finance their businesses, real estate ventures and tax shelters -- regularly abusing authority and ignoring blatant conflicts of interest, according to thousands of pages of confidential bank records and more than 100 interviews.
Largely cloistered from public scrutiny, a small group of the directors and officers at times bowed to influence peddlers and made unsound loans when it served their own interests and those of their families or friends -- often at the expense of the bank's customers and its stockholders, the record show.
The abuses have been tied most often to insider transactions -- loans and deals among bank officials using the resources of the bank. Those transactions increased threefold during the last five years, as the United Mine Workers of America, the bank's majority stockholder, forcefully asserted its control in a manner unparalled in the 30-year history of union ownership.
As a result, the bank has more troubled loans today than ever before, has suffered its worst quarterly profit plunge in nearly a decade and is under investigation by a federal grand jury and the U.S. Securities and Exchange Commission.
NBW's decline is a story of deception and corporate intrigue involving some of the city's most prominent business, civic and political leaders.
During a five-month investigation, The Washington Post obtained 3,000 pages of confidential minutes from the bank's executive committee, the small panel of directors that passes on all major loans and bank policies. The Post also reviewed thousands of pages of other confidential bank and union documents.
The internal documents and interviews offer a rare glimpse at the inner dealings of a major financial institution and chronicle the impact of a small group of men whose decisions can change the shape of neighborhoods, influence of outcome of political campaigns and pace the growth of business in the nation's capital.
These are some of the findings that the series will report over the next five days:
Federal bank examiners this summer found $53 million in loans with real or potential weaknesses -- nearly eight times as much as the bank's annual earnings of about $7 million and more than twice as much as banking experts consider reasonable for a bank of NBW's size. Despite its $860 million in assets, when liabilities are subtracted, the bank has a net worth of $56 million, leaving a thin margin of reserve in the event of heavy loan losses.
The late Joseph B. Danzansky, NBW's chairman until his death last year, held more than $2 million in insider loans at the bank -- some of them personal and some to his business interests -- despite a federal law saying that executive officers cannot borow more than $10,000 from their own institutions.
NBW director and general counsel Ronald G. Nathan, a protege of Mine Workers President Sam Church Jr., last year arranged a $50,000 loan for a Washington businessman while acting as the registered agent of the man's troubled business. The loan was a total loss for the bank, but Nathan nonetheless was paid a $10,000 legal fee by the businessman.
Nathan also failed to disclose, as required by federal law, partnerships he held in business ventures that received NBW loans. In one case, 10 days after Nathan sigend for his 7 percent partnership in a McPherson Square office building, the project got a $2.1 million renovation loan from the bank.
In 1978, some top officials of the bank agreed to an elaborate procedure to disguise a $50,000 line of credit to former City Council Chairman Sterling Tucker's campaign for mayor by making small loans to individuals who then contributed the money to the campaign. The highly unusual arrangement was used to bypass city election laws that set limits on campaign contributions and prohibit banks from making contributions through middle men.
Church, then vice president of the union and a member of NBW's board, told the bank's president to help win approval for a controversial $4.5 million loan to owners of Laurel Raceway in Howard County despite credit reports available in the bank stating that the loan might not be repaid and seriously questioning the integrity of the borrowers. The loan was not repaid and the bank lost at least $900,000.
The series of articles starting today documents what federal regulatory officials have feared ever since coalfield titan John L. Lewis Secretly bought control of the bank in 1949 -- namely, that the sometimes-volatile union would be unable to resist the occasional temptation to wrest control of the bank from its professional managers, especially when the interests of the union or its officers were at stake.
In the 1950s and 1960s, Lewis used loans from the bank to buy into coal companies secretly, either to prop them up or to force them to accept his union. In the early 1970s, then-UMW boss W. A. (Tony) Boyle used a $179,000 unsecured line of credit to stay out of jail after he was convicted of misusing union funds.
The serious troubles now facing the bank stem not only from a new union leadership forcefully taking control, but also from some overly eager bank managers willing to turn their backs on sound banking principles to curry favor with their union bosses.
The bank officials nurtured close relationships with top union officials, arranging home mortgages for them through savings and loan associations that did business at the bank. The bank paid for memberships in private clubs and picked up the tab for lavish entertainment and recreational trips for union leaders.
The stone facade and turrets of the bank's historic Washington branch at Seventh Street and Pennsylvania Avenue NW no longer symbolize fortress-like strength at NBW.
As a sign of the times, the Washington branch, a national landmark within blocks of the Capitol, was sold to the Argentine Naval Commission last year for $700,000 in a frantic attempt to keep the bank's profits up.