While precise details of the financial end of the U.S.-Iranian agreement have not been released in London, it was nevertheless clear that the Bank of England has played a crucial role in the settlement signed this morning in Algiers.
The U.S. government asked the Bank of England to help with the negotiations a week ago, London banking sources say. The move was a minor break-through in the drawn-out talks mediated by Algeria, these sources say.
By having the Bank of England act as "banker" for transactions between the two countries, the negotiators sidestepped the Iranian mistrust of the United States and fear that the final transfer of funds would not be carried out. The banking sources credit Algeria with convincing the Iranians to trust the Bank of England and for acting as guarnator of the funds deposited there.
Bankers here showed a good deal of admiration for the speed with which the agreement was ironed our prior to its signing in Algiers this morning. Despite potential last-minute hitches. "This is as complex a deal as ever was made over a weekend," one British banker said today. "It's probably the biggest fastest and most complicated financial deal ever."
The Bank of England was a natural chocie for holding and transferring the billions of dollars of Iranian funds. Approximately $3.5 billion of Iranian assets are already in London -- frozen in the local branches of major U.S. banks.
The sources here also noted that the Bank of England is big and sophisticated enough to handle the complicated transactions involved in transferring billions of dollars -- a task the Algerian Central Bank would have had difficulty carrying out quickly.
After two senior Bank of England executives flew to Algeria last Friday aboard a U.S. Air Force jet to help with the final negotiations, a number of accounts were to be opened at the Bank of England in the name of third parties to hold frozen Iranian assets released by the U.S. government and private U.S. banks.
One of these "escrow" accounts has already been opened in the name of the Algerian government, according to the British banking sources.
It holds roughly $2.2 billion -- the result of a U.S. government transfer of U.S.-held Iranian gold and the sale of Iranian-owned U.S. government securities. The money in the Algerian account is to be paid to Iran as soon as the hostages leave Iranian airspace.
Most of the frozen Iranian assets will not be released immediately, however. Their final status remains to be determined by an international arbitration panel to which the United States and Iran have turned over the task of settling outstanding financial claims between them.
An official at the London branch of a major U.S. bank involved in neogitations said tonight that three other accounts will be set up at the Bank of England to hold frozen Iranian assets held by American banks and still awaiting arbitration.
One account will hold funds frozen to cover syndicated bank loans to Iran. One account will cover direct loans from a single U.S. bank to Iran. The third will receive the interst that has accumulated on the Iranian assets while they were frozen. In the event that arbitration should be unsuccessful, these funds would all still be owned by the banks that transferred them to the Bank of England, the official at the American bank here said tonight.
A point that has worried some bankers is that many small banks that took part in large syndicated loans to Iran are more exposed than some of the major banks. This is because the small banks unlike several big U.S. banks, had no Iranian deposists they could freeze to offset outstanding loans. These small banks are particularly dependent on the outcome of arbitration to recover their loans.
But bankers here are privately delighted with the way their differences with Iran may be resolved. The freezing of Iranian assets in the London branches of U.S. banks was an embarrassment to both the British government and British bankers since it assumed U.S. jurisdiction over funds held on British soil -- a legally untried assertion that several British bankers said today would probably not stand up in British courts.
By settling the dispute out of court, all sides have been spared possible long and embarrassing legal hassles.
A U.S. banker here said: "We are happy to settle our loans with Iran by agreement because it is much more amicable than fighting in court. But we still are waiting for arbitration to determine what will be repaid when."
London bankers dealing in the Eurodollar market today discounted the effect of Iranian promises to switch the recovered assets out of dollars. They say the Iranians would undercut themselves if they attempt to buy billions of dollars worth of Swiss francs or Janpanese yen since the market value of the dollar will fall as soon as the Iranians begin unloading billions of them.
"The prudent thing would be for Iran to move slowly and use the gold it is getting from the United States as collateral for loans with which to purchase the weapons it needs," a senior American banker here said today. "But no one can count on financial prudence from Iran."