The Sharperning Battle over Bert Lance

The Sharpening Battle Over Bert Lance

In Georgia he was Jimmy Carter's friend, sharing his triumphs, helping him borrow money for his peanut warehouse. As a New South go-go banker, he made himself a millionaire, and he was one of the first men whom Carter appointed to a Cabinet-level position. Now the director of the Office of Management and Budget--who cruised around Washington during Inaugural week in a black Cadillac bearing special license plates with BERT on the front bumper and LANCE on the back--might be the first man to go. Last week Bert Lance was rapidly becoming an embarrassment to the Administration, a threat to its whole aura of stern moral probity, and the target of an investigation by the U.S. Comptroller of the Currency.

Unexpectedly, the deeply indebted man, who is one of the Government's most powerful economic policymakers, was also in trouble in the Senate. Lance had asked for more time before he had to sell his 200,000 shares of National Bank of Georgia stock (TIME, July 25), and it had seemed assured that the Senate Governmental Affairs Committee would grant the delay. But last week, after newspapers covered Lance with the appearance of new improprieties, the committee stalled and invited him to testify this week. That forced Lance, as Tennessee Democrat James Sasser put it, "to twist in the wind for a few more days."

According to the newspaper stories, Lance may have: 1) misused funds of the Georgia bank, when he was its president, in a loan deal with the First National Bank of Chicago; and 2) mortgaged his political influence to get large personal loans. In addition, TIME has learned that Lance prodded the Carter Administration to help the chairman of a Tennessee bank that had lent him $443,000.

All of the charges were promptly denied and, at week's end, the evidence concerning Lance's loans was inconclusive--and in some respects plainly on his side. But the charges were so serious--and so well publicized--that Democratic Senator Abraham Ribicoff, chairman of the committee, called for an investigation; the committee will decide this week whether to begin a probe. "If we just drop this thing," said Ribicoff, "we would be doing a disservice to Mr. Lance, a disservice to the President and a disservice to the country." Meanwhile, investigators from the U.S. Comptroller's office gathered up the records of Lance's big loan from the First National Bank of Chicago.

Breathless Claim. This loan was the focus of the most sensational of the charges. New York Times Columnist William Safire, a former Nixon speechwriter, raised the question of whether the $3.4 million loan that was granted on Jan. 7, after Lance had accepted the sensitive OMB job, was a "sweetheart loan." Safire claimed rather breathlessly that the deal was an opportunity for the bank's chairman, A. Robert Abboud, who is extremely influential in Chicago Democratic politics, "to gain life-and-death financial control over the man closest to the President."

In 1975 Lance had borrowed $2.7 million from Manhattan's Manufacturers Hanover Trust to buy 21% of the stock in the National Bank of Georgia (NBG). It was to refinance this loan, and to repay other debts, that he sought his $3.4 million loan late last year.

Safire charged that Chicago's First National had allowed Lance to defer interest payments, an unusual privilege for borrowers. The Chicago bank refused to discuss details of the loan publicly, but one of its top executives noted pointedly last week that the bank "has never denied" that it agreed to defer some interest on Lance's loan. Such a deferral on so large a loan would be reasonable, the executive argued, and not a special favor to a high economic policymaker, because Lance controls some $8 million worth of stock and other assets (he also has "direct liabilities" of $5.4 million). "Lance is not getting a break from the First National Bank of Chicago," said one of its spokesmen, noting that the loan to Lance "is the same as we would make to anyone of his financial situation. It was a damned good loan backed up by plenty of assets and collateral." Meanwhile, Lance insisted that he was making his quarterly loan payments promptly.

A different criticism of the Chicago loan sprang from the front page of the Washington Post. The newspaper reported Lance got the credit just one month after the NBG, of which he was still president, deposited $200,000 with Chicago's First National--at no interest. The stated purpose of the deposit was for the NBG to establish a "correspondent" relationship with the Chicago bank (such correspondent accounts are commonly opened by banks that wish to extend their services to other regions). The Post noted that if the interest-free deposit could be construed as a "compensating balance" for a favorable loan to Lance, the deposit might be an illegal misapplication of the NBG funds. And the Atlanta bank's need for a new correspondent in Chicago was suspect, the Post implied, because the NBG was already a correspondent with another Chicago bank.

It was the Post's report that most deeply shook the Senate committee. Said one of Lance's staunchest defenders, Georgia Democrat Sam Nunn: "If that story is true, then this committee is the least of Bert Lance's problems. He's got problems with the Comptroller of the Currency and the Justice Department."

Modest Profit. But claims by Lance and Abboud's Chicago bank seemed to undercut at least part of the Post's story. The interest rate on his loan, Lance said, was a respectable three-quarters of a percent above the prime interest rate; affluent borrowers sometimes pay as little as one-half percent above prime. As for the no-interest deposit, that is routine for a corresponding banking relationship. "There isn't a bank in the country that has an interest-bearing correspondent bank balance," comments one banker friendly to Lance. In addition, says a spokesman for Chicago's First National, the deposit has fluctuated. Contrary to the Post's report, it began as a $50,000 deposit in January and did not increase to about $200,000 until March. The fluctuations may indicate that NBG was actively using the account for legitimate business deals that it got through its correspondent relationship with Chicago's First National. Whatever profit the big, rich Chicago bank earned from the NBG's interest-free deposit was modest, and scarcely enough to compensate for any deferral of interest on Lance's $3.4 million loan.

Yet another of Lance's loans was causing trouble (he owes a total of $4.9 million to five banks). Lance borrowed $443,000 last year from the United American Bank of Knoxville, Tenn., to buy 26,000 NBG shares. He is a friend of the Knoxville bank's chairman, Jake Butcher, 41, a broad-smiling, self-made millionaire who is favored to win the Democratic nomination in next year's Tennessee gubernatorial race. This spring, Lance used his position in the Carter Administration to hasten approval of one of Butcher's pet promotions: Energy Expo '82, a world's fair to be held in Knoxville. Butcher is chairman of the $100 million project.

Lance arranged a meeting for Butcher with Treasury Secretary Michael Blumenthal, who was unaware of Lance's indebtedness to Butcher's bank. Also, according to Michelle Mandel, a special assistant in the Office of Management and Budget, Lance in April ordered aides to speed up paper work so that Carter could approve Energy Expo before a deadline for certification by the Paris-based Bureau of International Expositions. The BIE did certify the Knoxville extravaganza, and, as a result, the Commerce Department is drafting legislation for a congressional appropriation of $18 million to $20 million for a U.S. pavilion.

A spokesman for Lance says that he "did nothing to further the exposition." Yet, according to S.H. ("Bo") Roberts, president of Energy Expo, "Bert Lance has been very helpful." Roberts adds that other high officials and politicians were as helpful as Lance.

Quite possibly, Lance was just trying to aid a worthy civic project--and a man who was his friend. But the Expo incident--like his previously reported acceptance of free airplane rides from business friends and his outspoken support of low bank interest rates that would also reduce his personal interest payments--reveals at least a pattern of carelessness, bad judgment and lack of close concern for the strict propriety expected of public officials in post-Watergate Washington.

Two weeks ago, the President supported Lance when he requested release from his promise to sell his stock this year; the price of the shares had dropped from an average $17 when he bought them to $11 last Friday, and a forced sale could cost him more than $1 million. But there are, of course, limits to the indiscretions that Carter can tolerate. He pledged that his appointees would be "unfettered by any actual or apparent conflicts of interest." Last week Lance attempted to mollify one of his critics, Senator William Proxmire, by removing himself from a part of OMB's work. He designated one of the agency's executive associate directors, Bowman Cutter, as its final authority on banking matters. That may be enough--if the various investigators also conclude that Lance's deals were legitimate. But if the controversy continues to build, Lance may decide that the only way to preserve the appearance of propriety in the Carter Administration is to turn over all of his public burdens and concentrate on his personal finances rather than the nation's budgets.

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