Franklin's Low Finance

The situation of New York's Franklin National Bank, until recently the nation's 20th largest, has looked dismal ever since a gray day in May. Then the bank announced that instead of the $582,000 profit it had originally reported for the first quarter, it might have suffered a loss of as much as $39 million because of unauthorized trading in foreign currency by employees (TIME, May 27). Last week the picture suddenly turned $24.6 million worse. The bank reported losses of a numbing $63.6 million for this year's first five months: $40 million in the first quarter, mainly because of the currency trading, another $19 million of currency losses in April and May, and more than $4 million of operating losses in those two months.

Within hours after making the figures public, Harold V. Gleason resigned as chairman and president, completing an almost total wipe-out of Franklin's top management. He took the new post of executive vice chairman, and was succeeded as chief executive by Joseph W. Barr, a former Democratic Congressman from Indiana arid Secretary of the Treasury during the last few weeks of Lyndon Johnson's Administration. Frightened depositors continued to withdraw their savings. The bank lost more than $100 million in deposits last week, bringing withdrawals to $930 million, or almost a third of the $3 billion deposits that Franklin held when the bad news began to break six weeks ago.

Franklin has borrowed more than $1 billion from the Federal Reserve System since May and if it can continue to get such support it may yet pull out of its slide. The majority view, though, is that Franklin will survive only by merging with a larger bank, or perhaps selling off several of its operations piecemeal to other banks and shrinking back to its original base on Long Island. The bank's ultimate fate may well hinge on the still incomplete story of what went wrong. Franklin and its employees are now being investigated by the FBI, the Comptroller of the Currency and the Securities and Exchange Commission.

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